Q4 2021 Highwoods Properties Inc Earnings Call

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Speaker 1: Good morning and welcome to the Highwoods properties earnings call.

Good morning, and welcome to the high which properties earnings call.

Speaker 1: During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1, followed by the 4 on your telephone. At any time during the conference, you need to reach an operator, please press star 0.

During the presentation, all participants will be in a listen only mode.

Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press. The one followed by the four on your telephone that anytime during the conference you need to reach an operator, Please press star zero.

Speaker 1: As a reminder, this conference is being recorded Wednesday, February 9th, 2022.

As a reminder, this conference is being recorded Wednesday February 19 2022.

Speaker 1: It is now my pleasure to turn the conference over to Hannah True. Please go ahead, Ms. True.

It is now my pleasure to turn the conference over to Hanna True. Please go ahead Ms true.

Thank you operator, and good morning, everyone. My name is Hannah true and I work with Brendan on the finance and Investor Relations team here at Haywood.

Speaker 2: Thank you, operator, and good morning, everyone. My name is Hannah True, and I work with Brendan on the finance and investor relations team here at Highwoods.

Participating on the call. This morning are Ted Klink, our Chief Executive Officer, Brian Leary, Our Chief operating officer, and Brendan Maiorana, our Chief Financial Officer.

Speaker 2: Participating on the call this morning are Ted Klink, our Chief Executive Officer, Brian Leary, our Chief Operating Officer, and Brendan Mayorana, our Chief Financial Officer.

Speaker 2: For your convenience, today's prepared remarks have been posted on the web.

For your convenience today's prepared remarks have been posted on the web.

Speaker 2: If you have not received yesterday's earnings release or supplemental, they're both available on the investors section of our website at highwoods.com.

If you have not received yesterday's earnings release or supplemental they're both available on the investors section of our website at <unk> Dot com.

On today's call.

Speaker 2: Our review will include non-GAAP measures such as FFO, NOI, and EBITDAIR. The release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.

Our review will include non-GAAP measures such as F. S. A N O Y and EBITDA Deere the release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.

Speaker 2: Forward-looking statements made during today's call are subject to risk and uncertainties, including the ongoing adverse effect of the COVID-19 pandemic on our financial condition and operating results. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings.

Forward looking statements made during today's call are subject to risks and uncertainties, including the ongoing adverse effect of the COVID-19 pandemic.

On our financial condition and operating results. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings.

Speaker 2: As you know, actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update any forward-looking statements. With that, I'll now turn the call over to Ted. Thanks, Hannah. Good morning, everyone. I'd like to start off by welcoming Hannah to our call today. It's great to have you with us.

As you know actual events and results can differ materially from these forward looking statements and the company does not undertake a duty to update any forward looking statements.

With that I'll now turn the call over to Ted.

Thanks, Anna and good morning, everyone.

Want to start off by welcoming Hanna to our call today, it's great to have you with us.

Our fourth quarter was representative for execution thrilled all of 2021 as we delivered strong financial results.

Speaker 3: Our fourth quarter was representative of our execution throughout all of 2021 as we delivered strong financial results.

Speaker 3: solid leasing metrics and strengthening cash flows.

Solid leasing metrics and strengthening quechuas, all while improving the quality and resiliency of our portfolio.

Speaker 3: all while improving the quality and resiliency of our portfolio, protecting our fortress balance sheet, and laying the groundwork for additional long-term growth.

Protecting our fortress balance sheet and.

Been laying the groundwork for additional long term growth.

Speaker 3: Our simple and straightforward investment strategy is to generate attractive and sustainable returns over the long term by developing, acquiring, and owning a portfolio of high quality, differentiated office buildings in the best business districts, which we call BBDs.

Our simple and straightforward investment strategy is to generate attractive and sustainable returns over the long term, while developing acquiring and owning a portfolio of high quality differentiated office buildings, and the best business districts, which we called D. B DS.

A core component of this strategy is to continuously strengthen the financial and operational performance.

Speaker 3: A core component of this strategy is to continuously strengthen the financial and operational performance, resiliency, and long-term growth prospects of our portfolio, and recycle out of properties that no longer meet our criteria.

Resiliency and long term growth prospects of our portfolio and recycle out of properties that no longer meet our criteria.

To this end 2021 we acquired 800 million of high quality office buildings in Raleigh and Charlotte.

Speaker 3: To this end, 2021, we acquired 800 million of high quality office buildings in Raleigh and Charlotte.

Speaker 3: completed 350 million of 92% leased office development.

Completed 350 million of 92% leased office development.

Speaker 3: acquired approximately $100 million of land for future development in three BBDs, and sold 385 million of non-corp properties.

Acquired approximately 100 million of land for future development in three days.

Sold $385 million of noncore properties.

Speaker 3: In addition, since our last call, we've announced 174 million of development that is a combined 36% pre-leased, even before putting the first shovel in the ground.

In addition, since our last call, we've announced $174 million of development. It is a combined 36% pre leased even before putting the first shovel in the ground.

Speaker 3: Since the beginning of 2019, we have acquired 3.1 million square feet of best in class office assets for total investment of $1.3 billion.

Since the beginning of 2019, we've acquired $3 1 million square feet of best in class office assets for a total investment of $1 3 billion.

Speaker 3: delivered 1.4 million square feet of highly leased office development for a total investment of nearly 600 million and sold 6.7 million square feet of non-core properties for 1 billion.

Delivered one 4 million square feet of highly leased office development for a total investment of nearly 600 million.

So $6 7 million square feet of non core properties for 1 billion.

Speaker 3: Because of these continuous and meaningful improvements, our portfolio is even more resilient and better poised for long-term growth.

Because of these continuous and meaningful improvements our portfolio is even more resilient and better poised for long term growth.

Speaker 3: Plus, our cash flows have continued to strengthen, as evidenced by 15% higher average in-place office rents, and a meaningful reduction in our cap-ex spend over these three years.

Plus our cash flows have continued to strengthen as evidenced by 15% higher average in place office rents and a meaningful reduction in our capex spend over these three years.

Speaker 3: During this same period, we've grown core FFO 9% and our dividend 8% while maintaining a strong balance sheet and investing in the building blocks for additional long-term growth.

During the same period, we've grown core F F O, 9% and our dividend, 8%, while maintaining a strong balance sheet and investing in the building blocks for additional long term growth.

Turning to our results.

Speaker 3: We delivered FFO of $1.06 per share in the fourth quarter, which includes nine cents of land sale gains.

We delivered F F O a dollar in six cents per share in the fourth quarter, which includes nine cents of land sale gains.

Speaker 3: Even when we exclude these land sale gains, our full year FFO was $3.77 per share.

Even when we exclude the land sale gains are full year F. F O was $3 77 per share.

Speaker 3: one cent above the high end of our revised outlook in October , and 19 cents above the midpoint of our original outlook last February .

One set above the high end of our revised outlook in October and.

In 19 cents above the midpoint of our original outlook last February .

In addition to F F O or operations were also healthy.

Speaker 3: In addition to FFO, her operations were also healthy. Same property cash in a lie growth with solid at plus 3.2% for the quarter and plus 5.5% for the year.

Same property cash NOI growth was solid at plus three 2% for the quarter and plus five 5% for the year.

Speaker 3: We leased 884,000 square feet of second-gen space, including 284,000 square feet of new leases and 47,000 square feet of net expansion.

We leased 884000 square feet of second Gen space, including 284000 square feet of new leases.

And 47000 square feet of net expansions.

Rent spreads were positive three 2% on a cash basis.

Speaker 3: Rent spreads were a positive 3.2% on a cash basis and plus 11.6%

And plus 11, 6% on a GAAP basis.

We also signed 158000 square feet of first Gen leases since our last call.

Speaker 3: We also signed 158,000 square feet of first-gen leases since our last call.

Speaker 3: Solid leasing activity helped drive year-end occupancy up to 91.2 percent.

Solid leasing activity helped drive year end occupancy up to 91, 2%.

Similar to last quarter utilization across our portfolio hovers around 40%.

Speaker 3: Similar to last quarter, utilization across our portfolio hovers around 40%.

Speaker 3: We anticipate more customers returning to the office later in the first quarter and during the spring months.

We anticipate more customers returning to the office later in the first quarter and during the spring months.

Utilization tends to be higher than our suburban buildings and among smaller customers.

Speaker 3: Utilization tends to be higher in our suburban buildings and among smaller customers.

Despite overall utilization continuing to be significantly below pre pandemic levels. We are encouraged by the strong customer and prospect interest, we're seeing across our portfolio, which translated into healthy leasing in the fourth quarter.

Speaker 3: Despite overall utilization continuing to be significantly below pre-pandemic levels, we are encouraged by the strong customer and prospect interest we're seeing across our portfolio which translate into healthy leasing in the fourth quarter.

Turning to investments in the quarter, we sold 1 million square feet of non core assets for 191 million that were a combined 77, 5% occupied.

Speaker 3: Turning to investments, in the quarter we sold 1 million square feet of non-core assets for 191 million, that were a combined 77.5% occupied.

Speaker 3: These sales help bring our debt to EBITDA ratio down to 5.4 times.

These sales helped bring our debt to EBITDA ratio down to 5.4 times.

Speaker 3: We have sold over $350 million of non-corp property since the middle of last year, with another $150 to $200 million to go to return our balance sheet to prepack acquisition metrics.

We've sold over $350 million of noncore properties since the middle of last year with another 150 to 200 million to go to return our balance sheet to pre pack acquisition metrics.

Speaker 3: On the acquisition front, competition for high quality properties in our markets, BBDs has continued to increase since the beginning of the pandemic.

On the acquisition front competition for high quality properties in our markets <unk> has continued to increase since the beginning of the pandemic.

Institutional investors, both foreign and domestic recognize the excellent long term value of the assets located in the best Submarkets across our footprint.

Speaker 3: Institutional investors, both foreign and domestic, recognize the excellent long-term value of assets located in the best submarkets across our footprint.

Speaker 3: We will continue to be disciplined with our capital allocation as we seek to acquire office assets that would further strengthen our performance, resiliency, and long-term growth prospects.

We will continue to be disciplined with our capital allocation as we seek to acquire office assets that would further strengthen our performance resiliency and long term growth prospects.

Our $283 million development pipeline is 51% pre leased.

Speaker 3: Our $283 million development pipeline is 51% pre-leaf.

Leasing was healthy for our completed but not yet stabilized developments.

Speaker 3: leasing was healthy for our completed but not yet stabilized development.

Speaker 3: As you may remember, we started both Virginia Springs II and Midtown West fully spec in 2019.

As you May remember, we started both Virginia Springs II in Midtown West fully spec in 2019.

At our Virginia Springs II project.

In Nashville, Brentwood, B B D. We're now 90% leased and have healthy interest in the balance of the space.

Speaker 3: in Nashville's Brentwood BBD are now 90% leased and have healthy interests in the balance of the space.

Speaker 3: At Midtown West in Tampa, our 150,000 square foot, $71 million property is 65% leased. We have solid interest from additional prospects.

In Midtown West and Tampa are 150000 square foot $71 million.

Property is 65% leased so we have solid interest from additional prospects.

Speaker 3: During the quarter, we announced the 218,000 square foot, $95 million Glen Lake 3 office and a mini retail project in Raleigh. That's currently 15% pre-release.

During the quarter, we announced the 218000 square foot $95 million Glen Lake three office.

Retail project in Raleigh is currently 15% pre leased.

Speaker 3: We have just broken ground on this property, which will be LEED and FITWELL certified.

We have just broken ground on this property, which will be LEED and fit well certified.

Speaker 3: We have 732,000 square feet of in-service product in Glen Lake that are a combined 97% occupied.

We have 732000 square feet of in service product and Glenn like that or a combined 97% occupied.

Glen Lake three which is scheduled to be completed in late 2023 and stabilize in early 2026 will provide growth opportunities for existing customers and new users.

Speaker 3: Glenlake 3, which is scheduled to be completed in late 2023 and stabilize in early 2026, will provide growth opportunities for existing customers and new users.

Speaker 3: After year end, we announced the 135,000 square foot 2827 Peachtree office development and a 50-50 joint venture with Brand Properties. This $79 million boutique office development has a healthy mix of on-site and nearby amenities which has helped drive strong activity. The development is already 62% pre-leased and talks with prospects continue.

After year end, we announced the 135000 square foot 28, 27, Peachtree office development in a 50 50 joint venture with brand properties, the $79 million boutique office development. So it's a healthy mix of onsite and nearby amenities, which has helped drive <unk>.

Drawing activity.

The development is already 62% pre leased and talks with prospects continue.

Our land bank has never been more attractive that can support $2 3 billion of future office and another almost $2 billion of adjacent mixed use development via new apartments shops restaurants and hotels.

Speaker 3: Our land bank has never been more attractive. It can support $2.3 billion of future office and another almost $2 billion of adjacent mixed use development via new apartments, shops, restaurants, and hotels.

Speaker 3: Now to our 2022 FFO outlook of $3.76 to $3.92 per share.

Now to our 2022 F F O outlook of $3 76 to $3 92 per share.

Speaker 3: We assume utilization of our portfolio will gradually increase throughout the rest of the year.

We assume utilization of our portfolio will gradually increase throughout the rest of the year.

Speaker 3: At the midpoint of our per share outlook, we project same property operating expenses will be 10 cents higher than last year, while parking revenues will improve by only one cent.

At the midpoint of our per share outlook. We project same property operating expenses will be 10 cents higher than last year, while parking revenues will improve by only one cent.

Speaker 3: As we have long foreshadowed, as usage increases, OPEX will recover faster than parking revenues.

As we have long foreshadowed as usage increases opex will recover faster than parking revenues.

Speaker 3: And this is incorporated in our 0 to 2% same property cash in a wide growth outlook for market up from having a very Polk stocks in length because it booms in the door 4,ical

And this is incorporated in our zero to 2% same property cash NOI growth outlook.

For 2022.

Speaker 3: As previously stated, we plan to sell 150 to 200 million of non-core assets to return our balance sheet metrics to pre-pack acquisition levels.

As previously stated we plan to sell 100 $250 million to $200 million of noncore assets to return our balance sheet metrics to pre pack acquisition levels.

We currently project the dilutive impact of these.

Speaker 3: We currently project the diluted impact of these dispositions to be four to eight cents per share.

Dispositions to be four to eight per share.

In addition, our outlook includes up to an additional 200 million of potential dispositions the effect of which is not assumed in our 2022 F. F O outlook.

Speaker 3: In addition, our outlook includes up to an additional 200 million of potential dispositions, the effect of which is not assumed in our 2022 FFO outlook.

Speaker 3: We have included a placeholder for acquisitions of zero to 200 million.

We have included a placeholder for acquisitions of zero to $200 million.

Speaker 3: We also continue to have conversations with build-a-suit and anchor customers for additional developments and project 100 to 250 million of development announcements inclusive of the $79 million 2827 Peachtree development.

We also continue to have conversations with build to suit and anchor customers for additional developments and projected $100 million to $250 million of development announcements inclusive of the $79 million 28, 27 Peachtree development.

Speaker 3: Before I turn the call over to Brian , I would like to briefly recap 2021.

Before I turn the call over to Brian I would likely I would like to briefly recap 2021.

During the year.

We generated 5% growth in core F F O.

Speaker 3: We generated 5% growth in core FFO.

Speaker 3: increased our dividend 4%, delivered 5.5% same property cash in Y growth.

Increased our dividend 4% dip.

Delivered five 5% same property cash NOI growth.

Signed 194, new second Gen leases the most in any single year since 2006.

Speaker 3: signed 194 new second gen leases, the most in any single year since 2006, totaling 1.1.

Totaling $1 1 million square feet.

Acquired $800 million of high quality office assets in Raleigh and Charlotte.

Speaker 3: acquired $800 million of high-quality office assets in Raleigh and Charlotte.

Completed $356 million of 92% leased office development.

Speaker 3: completed $356 million of 92% leased office development.

Speaker 3: acquired 100 million of development land, and maintained a strong balance sheet with year-end leverage of 39%, and a debt-to-EBA-DA ratio of 5.4 times.

Wired $100 million of development land and maintain a strong balance sheet with year end leverage of 39%.

Debt to EBITDA ratio of five four times.

While we're pleased with our 2021 results were even more confident that we continue to have the building blocks in place to drive sustainable growth over the long term.

Speaker 3: While we're pleased with our 2021 results, we're even more confident that we continue to have the building blocks in place to drive sustainable growth over the long term.

Speaker 3: In conclusion, while our high quality baby dates and buildings are the beneficiaries of a fight to quality.

In conclusion, while our high quality baby deeds and buildings are the beneficiaries of a flight to quality.

Speaker 3: It is our humble, hardworking, talented teammates, leasing, operating, and maintaining our portfolio as a single team wearing the same Highwoods jersey that are our true trophy assets.

It is our humble and hard working talented teammates leasing operating and maintaining our portfolio as a single team. We're in the same Hollywood's Jersey that are a true trophy assets.

Speaker 3: I would like to take time to thank the entire Highwoods team for their continued hard work and commitment throughout 2021. This type of dedication has put our company in a great position for years to come. Ryan. Thank you.

Like to take time to thank the entire high Wood's team for their continued hard work and commitment throughout 2021.

This type of dedication has put our company in a great position.

For years to come Brian .

Thank you Ted and good morning, everyone.

Speaker 4: The positive metrics we've posted for the quarter and throughout the global pandemic are a testament to the simple strategy we execute every day.

The positive metrics, we've posted for the quarter.

And throughout the global pandemic.

Are a testament to the simple strategy, we execute every day.

Speaker 4: This strategy has positioned highways to be the beneficiary of a great migration to our markets, a great acceleration to our BBDs.

This strategy has positioned <unk> to be the beneficiary of a great migration to our markets.

A great acceleration to our B B DS.

And a flight to quality buildings.

Speaker 4: All of which are both urban and suburban in nature. Most customers have planned.

All of which are both urban and suburban in nature.

Most customers have plans to return to the office or.

Speaker 4: are expanding more than they are contracting, and now see the workplace as a vital part of their ability to retain and recruit.

Our expanding more than they are contracting now.

And now see the workplace is a vital part of their ability to retain and recruit.

Speaker 4: but specifically return talent to their organization.

But specifically return talent to the organization.

Companies that create value through collaboration and culture have come to the clear conclusion that they are simply better together we.

Speaker 4: Companies that create value through collaboration and culture have come to the clear conclusion that they are simply better together.

Speaker 4: We believe a workplace that attracts people and allows them to achieve together what they cannot apart will be full and command attractive economics.

We believe a workplace that attracts people and allows them to achieve together, where they cannot apart will be full and command attractive economics.

Speaker 4: We're seeing this now throughout our portfolio, and it's evidenced in the results our team is producing. Occupancy increased 80 basis points from last quarter.

We're seeing this now throughout our portfolio and it's evidenced in the results our team is producing.

Occupancy increased 80 basis points from last quarter.

Ended the year at 91, 2%.

Speaker 4: We expect occupancy to dip modestly in the first half of the year before increasing in the latter half.

We expect occupancy to dip modestly in the first half of the year before increasing in the latter half.

Speaker 4: Our utilization currently remains below pre-pandemic levels. We project it will increase steadily throughout the year.

Our utilization currently remains below pre pandemic levels.

Jackie will increase steadily throughout the year.

We continue to see healthy tour and RFP activity.

Speaker 4: we continue to see healthy tour and RFP activity, which is evident in the 884,000 square feet and 123 deals signed in the quarter.

Which is evident in 884000 square feet.

And 123 deals signed in the quarter.

Speaker 4: the highest quarterly deal count since 2016. Of these 123 deals, 54 were new totaling 284,000 square feet.

The highest quarterly deal count since 2016.

These 123 deals 54 were new.

<unk> 284000 square feet.

Speaker 4: Emblematic of our balanced portfolio, no one market disproportionately carried the load, as five of our markets garnered eight or more new deals.

Emblematic of our balanced portfolio no one market disproportionately carried the load as five of our markets garnered eight or more new deals.

In addition, we signed 158000 square feet of first generation leases in the quarter for our developments in Nashville.

Speaker 4: In addition, we signed 158,000 square feet of first-generation leases in the quarter for our developments in Nashville, Tampa, Raleigh and Atlanta.

Hamper Raleigh and Atlanta.

Speaker 4: Our markets are benefiting from what some have termed the great migration.

Our markets are benefiting from what some have termed the great migration.

Speaker 4: It has accelerated since the onset of the pandemic, is generating economic prosperity, and has started a flywheel of corporate expansions and relocations.

It has accelerated since the onset of the pandemic.

It is generating economic prosperity.

And it started a flywheel of corporate expansions and relocations.

Speaker 4: These moves will have generational impacts as these talented individuals and organizations plant roots in our market.

These moves will have generational impacts because these talented individuals and organisations plant roots in our markets.

Speaker 4: As a result of this momentum, we continue to see strong fundamentals throughout our footprint.

As a result of this momentum we continue to see strong fundamentals throughout our footprint.

Speaker 4: Atlanta, Raleigh, Nashville, and Charlotte all posted positive net absorption for the quarter.

Atlanta, Raleigh, Nashville, and Charlotte all posted positive net absorption for the quarter.

Speaker 4: Unemployment rates are returning to near record lows and multiple markets have grown their office using jobs since the start of the pandemic.

Unemployment rates have returned to near record lows in multiple markets have grown their office using jobs since the start of the pandemic.

Speaker 4: Raleigh has been a clear winner coming out of the pandemic, where tens of thousands of tech and life science jobs have been announced, and where we signed 220,000 square feet of leases for the quarter, ending the year 92.8% occupied.

Raleigh has been a clear winner coming out of the pandemic.

Or tens of thousands of tech and life science jobs have been announced and where we signed 220000 square feet of leases for the quarter ending the year 92, 8% occupied.

Speaker 4: Witnessing this demand firsthand and recognizing we had little room for growth at our 732,000 square foot and 97% occupied Glen Lake mixed-use development.

Witnessing this demand firsthand and recognizing we had little room for growth in our 732000 square foot at 97% occupied Glen Lake mixed use development.

Speaker 4: We started construction in November on a new 218,000 square foot office building and a curated collection of shops and restaurants.

We started construction in November on a new 218000 square foot office building and a curated collection of shops and restaurants.

Speaker 4: This will complete Glen Lake's Live, Work, Play Master Plan.

This will complete Glenn makes live work play Masterplan and.

Speaker 4: and serve as the latest product of our workplace making efforts. This $94.6 million investment

Serve as the latest product of our workplace, making efforts.

It's 94.6 million dollar investment.

15% pre leased.

Speaker 4: will achieve LEED and FITWEL certifications upon completion, and will be home to McKim and Creed, a national engineering and surveying firm.

<unk> lead and farewell certifications upon completion and it will be home to mccammon Creed of National Engineering and surveying firm.

While our friends in Tampa May have sent the title town banner up Interstate 75 to Heartland Huh.

Speaker 4: While our friends in Tampa may have sent the Title X banner up Interstate 75 to Hotlanta, where the Braves and Dawgs delivered a double dose of Euphoria.

The Braves and dogs delivered a double dose of euphoria.

Speaker 4: Tampa has won Zillow's number one spot as the nation's top housing market for 2022.

Tampa has one zillow is number one spot as the nations top housing market for 2022.

When the market's office rents increased 7% and our team signed 219000 square feet of leases for the quarter.

Speaker 4: When the market's office rents increased 7% and our team signed 219,000 square feet of leases for the quarter.

Our Midtown West development above and Rei in adjacent to a new whole foods.

Speaker 4: Our Midtown West development above an REI and adjacent to a new Whole Foods is now 54.5% leased and is busy with tours and inbound interest.

It's now 64, 5% leased and is busy with tours and inbound interest.

Speaker 4: Speaking of Atlanta, the unemployment rate has dropped there below 2.5%.

Speaking of Atlanta.

Employment rate has dropped there below 2.5%.

Speaker 4: Cushman Wakefield has noted rents are at an all-time high, and our team signed 136,000 square feet of second-generation leases in a quarter.

Cushman Wakefield as noted rents are at an all time high.

And our team signed 136000 square feet of second generation leases in the quarter.

Speaker 4: Further, our 79 million, 50-50 joint venture with Atlanta-based brand properties to develop 2827 Peachtree and Buckhead is 62% leased to multiple customers.

Further our.

79 million 50, 50 joint venture with Atlanta based brand properties to develop 28 2007 Peachtree in Buckhead.

At 62% leased to multiple customers.

Speaker 4: This project will be completed in the third quarter of 2023 and is projected to stabilize in the first quarter of 2025.

This project will be completed in the third quarter of 2023.

And is projected to stabilize in the first quarter of 2020 five.

Speaker 4: Wrapping up in Nashville, where we ended the year 94.8% occupied, we made great progress on our Virginia Springs 2 development.

Wrapping up in Nashville, where we ended the year, 94.8% occupied.

We made great progress on our Virginia Springs II development.

We're just now 90% leased up from 59% last quarter.

Speaker 4: which is now 90% leased, up from 59% last quarter.

The most significant addition to our land inventory in 2020 one.

Speaker 4: The most significant addition to our land inventory in 2021 was the acquisition of the remaining 77 acres of evasion.

Was the acquisition of the remaining 77 acres of aviation.

Speaker 4: In total, a 145-acre mixed-use development already home to the high-wits-developed Mars Pet Care North American headquarters, in which is currently entitled for an additional 1.2 million square feet of office, 480,000 square feet of space.

In total a 145 acre mixed use development already home to the high was developed Mars Petcare and North American headquarters and which is currently entitled for an additional one 2 million square feet of office.

480000 square feet of shops and restaurants.

Speaker 4: 950 residential units and 450 hotel rooms.

950 residential units.

And 450 of hotel rooms.

The opportunity inherent innovation is a perfect example.

Speaker 4: The opportunity inherent innovation is a perfect example of our workplace making efforts.

Of our workplace, making efforts.

Speaker 4: Where appropriate, we'll utilize our mixed use land bank to induce those vertical uses complementary to creating the best possible addresses to conduct business.

Where appropriate we will utilize our mixed used land bank to induce those vertical uses complementary to creating the best possible addresses to conduct business.

In conclusion.

Speaker 4: Thank you to the amazing women and men of Hywet's properties who have put their customers first and allowed us to achieve great things together. Now I'll hand it off to Brent.

Thank you to the amazing women and men of habits properties.

Who have put their customers first.

US to achieve great things together.

Now I'll hand, it off to Brendan.

Thanks, Brian in the fourth quarter, we delivered net income of $124 9 million or $1 19, a share and <unk> of $113 5 million or $1 six a share as Ted mentioned, the only significant unusual item in the fourth quarter, where land sale gains of nine cents excluding.

Speaker 2: Thanks Brian . In the fourth quarter we delivered net income of $124.9 million or $1.19 a share and FFO of $113.5 million or $1.06 a share. As Ted mentioned the only significant unusual item in the fourth quarter were land sale gains of nine cents. Excluding the fourth quarter land sale gains our 2021 FFO per share was $3.77.

Fourth quarter land sale gains our 2021 peso per share was $3.77.

Speaker 2: A penny above the high end of our revised outlook of 373 to 376.

Above the high end of our revised outlook of $3 73 to $3 76, the better than expected F out in the fourth quarter, which was primarily driven by higher occupancy and lower operating expenses was consistent with the rest of the year as our F. F. O of $3 77, a share was 19 cents higher than the.

Speaker 2: The better than expected FFO in the fourth quarter, which was primarily driven by higher occupancy and lower operating expenses, was consistent with the rest of the year, as our FFO of $3.77 a share was 19 cents higher than the original midpoint of the outlook we provided last February . The upside for the full year was driven by...

Original midpoint of the outlook, we provided last February the upside for the full year was driven by eight cents from operations due to lower anticipated opex recovering parking revenues and higher occupancy.

Speaker 2: 8 cents from operations due to lower anticipated OpEx, recovering parking revenues, and higher occupancy.

Speaker 2: five cents from higher than anticipated NOI from development, the majority of which was from the early delivery of Assurian's headquarters, and six cents from the net impact of the PAC acquisition partially offset by the acceleration of $353 million of non-core disposition.

Five cents from higher than anticipated NOI from development. The majority of which was from the early delivery of assurance headquarters and six cents from the net impact of the pack acquisition, partially offset by the acceleration of $353 million of noncore dispositions.

Speaker 2: Our balance sheet is in excellent shape. We ended the year with debt to EBITDAER of 5.4 times, down from 5.6 at the end of the third quarter. Last April , when we announced the acquisition from PAC, we stated our plan was to return our balance sheet to pre-acquisition metrics by mid-year 2022. We're on pace to meet this target with a plan to sell another 150 to 200 million of non-corp properties in the first half of this year.

Our balance sheet is in excellent shape, we ended the year with debt to EBITDA. There of 5.4 times down from $5 six at the end of the third quarter last April when we announced the acquisition from pack. We stated our plan was to return our balance sheet to pre acquisition metrics by mid year 2022 were on.

Pace to meet this target with our plan to sell another 150 to 200 million of noncore properties in the first half of this year.

Speaker 2: We sold $353 million of non-corp properties since the announcement of the PAC acquisition. These sales had an average in-place occupancy of 80% and had a projected cap rate of less than 6% on a GAAP basis and in the low fives on a cash basis. The remaining $150 to $200 million of dispositions are likely to have higher average cap rates, most likely in the low sevens on a GAAP and cash basis.

We sold $353 million of noncore properties since the announcement of the pack acquisition. These sales had an average in place occupancy of 80% and had any projected cap rate less than 6% on a GAAP basis and in the low fives on a cash basis. The remaining 150 to two one.

Hundreds of million of dispositions are likely to have higher average cap rates most likely in the low sevens on a GAAP and cash basis.

Speaker 2: During the fourth quarter, we issued a modest amount of shares on our ATM program at an average price of $46.75 a share for net proceeds of $7.2 million, consistent with our ATM activity in the second and third quarters.

During the fourth quarter, we issued a modest amount of shares on our ATM program at an average price of $46.75 a share for net proceeds of $7 $2 million consistent with our ATM activity in the second and third quarters.

ATM issuances remain one of the tools, we believe are inefficient and measured way to fund incremental investments, particularly our development pipeline on a leverage neutral basis as Ted mentioned, our F. F O for 2022 is $3 76 to $3 92, a share as disclosed.

Speaker 2: ATM issuances remain one of the tools we believe are an efficient and measured way to fund incremental investments, particularly our development pipeline, on a leverage-neutral basis.

Speaker 2: As Ted mentioned, our FFO for 2022 is $3.76 to $3.92 a share. As disclosed in last night's release, this includes four to eight cents of dilution from planned dispositions and the anticipated headwind of eight to 12 cents of higher Op-Ex net of anticipated recoveries.

Those in last Night's release. This includes four to eight cents of dilution from planned dispositions and the anticipated headwind of eight to 12 cents up higher opex net of anticipated recoveries. The higher projected Opex has also reduced our outlook for same property cash NOI growth.

Speaker 2: The higher projected OPEX has also reduced our outlook for same property cash and Y growth by 200 to 300 basis points. Excluding this impact, we would be in line with our long-term average.

By 200 to 300 basis points, excluding this impact we would be in line with our long term average.

Speaker 2: Some of the major drivers of the year-to-year changes in our FFO growth outlook at the midpoint of the range are 10 cents of lower FFO due to higher OPEX net of recoveries, 10 cents of higher revenue on the in-service portfolio.

Some of the major drivers of the year to year changes in our F. L growth outlook at the midpoint of the range or.

10 cents.

Lower F O due to higher Opex net of recoveries 10 cents of higher revenue on the in service portfolio.

Speaker 2: six cents of lower FFO due to first half 2022 plan disposition.

Six cents of lower F O due to first half 2022 planned dispositions.

Speaker 2: 4 cents of higher FFO due to the net impact of a full year of the PAC acquisition, partially offset by a full year impact from 2021 dispositions, and 9 cents of higher FFO due to the full year impact of the $285 million assurion build to suit. These items add up to 7 cents per share of year-over-year growth, which equates to the midpoint of our 2022 FFO outlook.

Four cents of higher F O due to the net impact of a full year of the pack acquisition, partially offset by a full year impact from 'twenty to 'twenty, one dispositions and nine cents up higher F O due to the full year impact of the 285 million dollar assure you and built to suit. These.

Items add up to seven cents per share of year over year growth, which equates to the midpoint of our 2022 F O outlook.

Speaker 2: I'd like to take a moment to recap the financial impact from the PAC acquisition and accelerated non-core dispositions. We stated we expected our plan to be approximately FFO neutral upon completion with growth over the long run. We now expect it will be modestly accretive to our pre-announcement FFO run rate.

I'd like to take a moment to recap the financial impact from the pack acquisition and accelerated noncore dispositions. We stated we expected or planned to be approximately <unk> neutral upon completion with growth over the long run we now expect it will be modestly accretive to our pre announcement.

<unk> run rate.

Speaker 2: Our 2021 FFO benefited by a net $0.06 from the $683 million PAC acquisition and $353 million of dispositions, and we project this investment activity will add an additional $0.04 to our 2022 FFO for a total of $0.10 of accretion.

Our 2021 F O benefited by a net six cents from the $683 million a pack of acquisition and 353 million of dispositions and we project. This investment activity will add an additional four cents to our 2022 F O for a total of 10 cents.

Accretion.

Speaker 2: Offsetting this will be the estimated $0.06 diluted impact at the midpoint from our planned $150 to $200 million of dispositions in 2022.

Offsetting this will be the estimated <unk> <unk> dilutive impact at the midpoint from our planned 150 to 200 million of dispositions in 2022.

Speaker 2: All in, on an annualized basis, we now expect the PAC acquisition and the corresponding non-core dispositions to be about 2 to 3 cents accretive to our pre-announcement FFO run rate with no change to the aforementioned improvement in our long-term growth rate.

All in on an annualized basis, we now expect the pack acquisition and a corresponding noncore dispositions to be about two to three cents accretive to our pre announcement F O run rate with no change to the aforementioned improvement in our long term growth rate.

Speaker 2: Finally, as Ted mentioned, over the past three years we have been very active on the capital recycling front, having sold a billion dollars of non-core properties, acquiring $1.3 billion of high quality, resilient properties with healthy, long-term growth prospects.

Finally, as Ted mentioned over the past three years, we have been very active on the capital recycling front, having sold a $1 billion of noncore properties acquiring $1 3 billion of high quality resilient properties with healthy long term growth prospects delivering $600 million of highly leased office development.

Speaker 2: delivering $600 million of highly leased office developments and adding over $100 million of development land.

And adding over $100 million of development land over the same time frame. We've increased average in place office rents, 15% averaged 3.5% same property cash NOI growth increased <unk>, 9% and our dividend, 8% all while maintaining a.

Speaker 2: Over the same time frame, we've increased average in-place office rents 15%.

Speaker 2: averaged 3.5% same property cash NLI growth.

Speaker 2: increased FFO 9% and our dividend 8% all while maintaining a fortress balance sheet. Plus, as we have long highlighted, our cash flows continue to strengthen, increasing more than 30% over the last three years, resulting in higher dividend coverage on our growing distributions.

<unk> balance sheet, plus as we have long highlighted our cash flows continue to strengthen increasing more than 30% over the last three years, resulting in higher dividend coverage on our growing distributions our growth may not always be linear quarter to quarter or year to year, but regardless of the short term.

Speaker 2: Our growth may not always be linear quarter to quarter or year to year, but regardless of the short-term impact, we will follow our investment strategy as we believe it will continue to improve the quality, resiliency, and growth outlook of our portfolio over the long run. Operator, we are now...

<unk>, we will follow our investment strategy as we believe it will continue to improve the quality resiliency and growth outlook of our portfolio over the long run.

Operator, we are now ready for questions.

Thank you if you would like to register a question or comment. Please press. The one followed by the four on your telephone you.

Speaker 5: Thank you. If you would like to register a question or comment, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. One moment please for our first question.

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Your question has been answered and you would like to withdraw your registration. Please press. The one followed by this three one moment. Please for our first question.

That first question comes from Blaine Heck of Wells Fargo. Please go ahead.

Speaker 5: That first question comes from Blaine Heck of Wells Fargo. Please go ahead.

Speaker 2: Great, thanks. Good morning, everyone. And thanks for all that detail. Brendan, can you talk a little bit about the operating expense guidance and what's driving that that increase this year, and maybe also remind us of the proportion of leases outstanding that are in a net lease structure versus some variation of gross leases in which you're not getting fully reimbursed for those expenses.

Great. Thanks, Good morning, everyone and thanks for all that detail Brendan can can you talk a little bit about the operating expense guidance and what's driving that that increase this year and maybe also remind us of the proportion of leases outstanding that are in a net lease structure versus some variation of gross leases in which you're not getting full.

The reimbursed for those expenses.

Speaker 2: Yeah, good morning, Blaine. Thanks for the question. So just first, the easy answer on the triple net versus full service. So we've got about 25% of the portfolio that has triple net leases. The remainder is full service gross leases. And the full service gross is where there's movement in terms of operating expenses. So I'm going to try to be as concise on this sort of complicated and complex answer as I can.

Yeah. Good morning, Blaine. Thanks for the question. So just first that the the easy answer on the Triple net versus full service. So we've got about 25% of the portfolio that has triple net leases the remainder as full service gross leases.

And the full service growth is where there is movement in terms of operating expenses, so I'm going to try to be as concise on this sort of complicated and complex answer as I can so.

So first what we expect in terms of operating expenses is really to be in a pretty you know let's call. It quote normalized opex environment for most of 2022, I think opex will probably be a little bit lower in the first quarter than normal and then we'll be back to normal in the second third and fourth quarters with the.

Speaker 2: What we expect in terms of operating expenses is really to be in a pretty, you know, let's call it quote, normalized OPEX environment for most of 2022. I think OPEX will probably be a little bit lower in the first quarter than normal, and then we'll be back to normal in the second, third, and fourth quarters, with the thought being we expect the vast majority of customers to be back in their space by the second quarter. And while that may not be their full teams, it's difficult to heat and cool half a suite. So we think we'll be incurring a full load of OPEX for the vast majority of the portfolio over the majority of the year.

<unk> being we expect the vast majority of customers to be back in their space in by the second quarter and while that may not be their fault teams its difficult to heat and cool half a suite. So we think we'll be incurring a full load of opex for the vast majority of the portfolio over the majority of.

The year and operating expenses were low in 'twenty, and 'twenty and 2021 as utilization was low across the portfolio and that benefited us and so for a number of our leases.

Speaker 2: And operating expenses were low in 2020 and 2021 as utilization was low across the portfolio, and that benefited us. And so for a number of our leases, our operating expenses that were incurred were below the base year expense stop. And so that accrued to our benefit.

Our operating expenses that were incurred were below the base year expense stop and so that accrued to our benefit as expenses return back to normal and increase we don't receive recoveries until we get back to that.

Speaker 2: As expenses return back to normal and increase, we don't receive recoveries until we get back to that base year expense stop. And so, as expenses increase in 2022, we think the vast majority of our leases will be at or above those expense stops.

Base year expense stop and so as expenses increase in 'twenty. Two we think the vast majority of our leases will be at or above those expense stops, but we won't receive the recoveries until we get to those levels. So we think that it will be an impact in terms of 'twenty.

Speaker 2: but we won't receive the recoveries until we get to those levels. So we think that it will be an impact in terms of 22 because expenses will increase and we won't receive recovery on all of those leases where we're below the base stop in 21.

Two because expenses will increase and we won't receive recovery on all of those leases, where we're below the base stop in 'twenty, one, but as we get beyond 'twenty. Two we don't think this is likely to be a major issue going forward. So I think if it expenses continue to increase in 'twenty three we ought to be protected.

Speaker 2: But as we get beyond 22, we don't think this is likely to be a major issue going forward. So I think if expenses continue to increase in 23, we ought to be protected there. And so it does hamper FFO growth for this year, as we disclosed in last night's outlook, by 8 to 12 cents and does, as I think I mentioned in the prepared remarks, impact.

There and so it does hamper F O growth for this year as we disclosed in last night's outlook by eight to 12 cents and does as I think I mentioned it in the prepared remarks impact same property growth as well by probably around two to 300 basis points to our projection for this year, but I would say outside of that all the other may.

Speaker 2: same property growth as well by probably around two to three hundred basis points as our projection for this year. But I would say outside of that all the other major trends I think feel normal to us and from a revenue standpoint I think this year is pretty normal in terms of same property so we do have a little bit of average occupancy growth that we expect in same property so outside of absorbing higher OPACs.

Your trends I think feel normal to us and from a revenue standpoint, I think this year its pretty normal in terms of same property. So we do have a little bit of average occupancy growth that we expect in same property. So outside of absorbing higher opex in 'twenty. Two I think our same property growth would be right in <unk>.

Speaker 2: in 22, I think our same property growth would be right in line with that long-term average of between 3 and 3.5%.

And with that long term average of call it between three and three 5%.

Okay. That's very helpful and just just to be clear I guess, you know were talking about you should be able to kind of phase out. This added opex burden as leases expire and this shouldn't be kind of a multiyear headwind for you all it should kind of normalize next year as.

Speaker 2: Okay, that's very helpful. And just to be clear, I guess, you know, we're talking about you should be able to kind of phase out this ad-hoc expert and as leases expire, this shouldn't be kind of a multi-year headwind for you all. It should kind of normalize next year, as you explained. Is that correct?

You explained is that correct yes.

Speaker 2: Yeah, that's right. I would say as leases expire, so what I would pay attention to, to just determine whether or not there's any issue with respect to OpEx increases over time is probably looking at rent spreads. So when we calculate and provide rent spreads, which I think we're what, plus 3.2% this quarter, what we do is we take the operating expenses that are sufficient. Oh. Ok, I wouldn't mad if printing wondering if insurance and the audit, a little bit less than I am worried aboutGu moves that bigger and gives better measurements, but as lies

Yeah, that's right I would say as leases expire so what what what I would pay attention to to just determine whether or not there's any issue with respect to opex increases over time is probably looking at rent spreads. So when we when we calculate and provide rent spreads, which I think we're what plus three.

0.2% this quarter, what we do is we take the operating expenses and if if we're getting $2 of recovery, let's call. It in a lease we add that to the.

Speaker 2: If we're getting $2 of recovery, let's call it, in a lease.

Speaker 2: we add that to the expiring rent. So if the expiring rent on the base rent is $35 and we're getting $2 of recovery, we would say that the expiring rent is $37 and then we would compare the new rent to that. So if we were absorbing anything in terms of higher OPX, you would see that show up in the rent spreads. And as you can see, our rent spreads have held up reasonably well. So it hasn't been an issue thus far. To the extent going forward, I think I would pay attention to those rent spreads to make sure that they're holding up in line with historical norms.

Expiring rent so if the expiring rent on the base rent is $35 and we're getting $2 of recovery, we would say that the expiring rent is $37 and then we would compare the new rent to that so if we were absorbing anything in terms of higher Opex, you would see that show up and in the rent spreads and as you can see our rents.

Spreads have held up reasonably well so it hasn't been an issue thus far.

The extent going forward I think I would pay attention to those rent spreads to make sure that they're holding up in line with historical norms.

Speaker 2: Yeah, that's very helpful. Second question for you, and then I'll turn it back over. Can you give us any any color on your expectations for a FFO or FAD during the year in 2022? Is there any reason we should expect growth in a FFO or FAD to be materially different from FFO growth that you're expecting?

Got it that's very helpful. Second question for you and then I'll turn it back over can you give us any any color on your expectations for <unk>. During the year. In 2022 is there any reason, we should expect a growth of naphtha or ethane be materially different from episode.

Both that you expected.

So I mean cash flow is always more volatile than F. F O.

Speaker 2: So, I mean, cash flow is always more volatile than FFO. So I would say that, I mean, there always tends to be a little bit more variability from year to year. But in general, sort of the major movers between what's going to move.

So I would say that I mean, there always tends to be a little bit more variability from year to year, but in general sort of the major movers between you know what's going to move cash flow versus what's going to move F. O R. Probably two main light items. So there's.

Speaker 2: cash flow versus what's going to move FFO are probably two main light items. So there's the level of non-cash rent, and we disclose that amount. And that ought to be relatively consistent, I think, between 21 and 22. And then there's the amount of capex, both leasing and building capex.

The level of noncash rent and we disclosed that amount and that ought to be relatively consistent I think between 'twenty, one and 'twenty two.

And then there's the amount of Capex, both leasing and May and building Capex.

Speaker 2: In 21, we probably had leasing cap acts that was

In 'twenty, one we probably had leasing capex that was a little bit lower than what it otherwise would be and some of that there tends to be a lag. So I think we reported 79 million of leasing capex that we spent during 'twenty, one and we committed $91 million of cash.

Speaker 2: a little bit lower than what it otherwise would be. And some of that, there tends to be a lag. So I think we reported 79 million of leasing CapEx that we spent during 21. And we committed 91 million of CapEx during the year. I would say the amount of commitments in terms of that leasing CapEx is probably a better gauge of what we are likely to spend on a go-forward basis. So that means that maybe there is a little bit more leasing CapEx that we would incur, I would say, on a normalized basis. But it is hard to tell kind of year to year. But regardless of that, as Ted mentioned, our cash flow is up over 30 percent over the past few years. So even with a 10 or $12 million increase in leasing CapEx, it still means that cash flow would be very healthy. And I think because of that strong cash flow, that was part of the reason why we increased the dividend a couple of quarters ago by over 4 percent.

Opex during the year I would say the amount of commitments in terms of that leasing capex is probably a better gauge of what we are likely to spend on a go forward basis. So that means that maybe there's a little bit more leasing capex that we would incur I'd say on a normalized basis, but it is hard to tell kind of year to year, but regard.

Most of that as Ted mentioned.

Our cash flow is up over 30% over the past few years, so even with a 10 or $12 million increase in leasing capex. It still means that cash flow would be would be very healthy and I think you know because of that strong cash flow that was part of the reason why we increased the dividend a couple of quarters ago by over 4%.

Speaker 6: Great. Very helpful. Thanks, everyone.

Great very helpful. Thanks, everyone.

Okay.

Speaker 5: The next question comes from Jamie Feldman, Bank of America. Please go ahead.

The next question comes from Jamie Feldman Bank of America. Please go ahead.

Great. Thanks, and good morning, just a quick follow up on the last question. So you talked about the $91 million committed in 'twenty. One I mean do you think theres a ketchup also you'll have to spend in 'twenty two that would take it above the 91.

Speaker 4: Great, thanks and good morning. Just a quick follow-up on the last question. So, you talked about the $91 million committed in 2021. I mean, do you think there's a catch-up also that you'll have to spend in 2022 that would take it above the 91?

Yeah. That's a good question Jamie It is hard to I mean, that's hard to I would say that that's it's hard to predict I don't I.

Speaker 2: Yeah, that's a good question Jamie. It is hard to, I mean that's hard to I would say that that's it's hard to predict. I don't I wouldn't say that it's

Wouldn't say that it's.

Speaker 2: particularly likely. It certainly could happen. I mean there's always a little bit of a backlog of leases that are committed to and then the spend comes later. I think we feel like the backlog is pretty stable so I think from this point if we continue to commit leasing capital that is in that range of

Particularly likely it certainly could happen I mean, there's always a little bit of a backlog of leases that are committed to and then the spend comes later I think we feel like the backlog is pretty stable. So I think from this point if we continue to commit leasing capital that is in that range of.

Of call it $20 million or so a quarter, then I think that number will be pretty stable, but it is hard to kind of predict on a quarter to quarter or year to year basis, but I wouldn't think there's any major drivers that are going to cause it to be substantially higher than the commitment levels.

Speaker 2: call it 20 million or so a quarter, then I think that number will be pretty stable. But it is hard to kind of predict on a quarter to quarter or year to year basis. But I wouldn't think there's any major drivers that are going to cause it to be substantially higher than the commitment level.

Speaker 4: Okay, thank you. And then I know you gave core guidance, but then you also talked about potential dispositions, potential acquisitions.

Okay. Thank you.

And then I know you gave core guidance, but then you also talked about a potential dispositions potential acquisitions.

Yeah, if you hit those ranges how should we think about what that could do to earnings.

Speaker 7: You know, if you hit those ranges, how should we think about what that could do to earn?

Speaker 7: And then I know you had, you know, during the call, you guys talked about how your guidance has gone up from kind of initial guidance.

And then I know you had during the call you guys talked about how your guidance has gone up from kind of initial guidance.

Speaker 7: over the years, what are the upside and downside drivers, the guidance here?

Over the years, you know what are the upside and downside drivers the guidance here.

Yeah, I'll take that and then maybe Tatter, Brian will add in so I think you know in terms of the acquisition. So we put the range in there for the $150 million to $200 million of the first half 'twenty two dispositions that we project and then the remaining acquisitions are.

Speaker 2: Yeah, I'll take that and then maybe Ted or Brian will add in. So I think, you know, in terms of the acquisitions, though, we put the range in there for the 150 to 200 million of the first half 22 dispositions that we project. And then the remaining acquisitions or dispositions, we didn't put that effect into guidance. We put the 4 to 8 cents range in for the first half disposition. So.

Positions, we didn't put that effect into guidance.

We put the four to eight range in for the first half disposition. So you know if we were at $200 million of dispositions and they happened earlier in the first half of the year. Then obviously, that's going to be probably be closer to the eight cents of dilution. If we are at $150 million of those dispositions in there call it towards the latter part of that.

Speaker 2: If we're at $200 million of dispositions and they happen earlier in the first half of the year, then obviously that's going to be, you know, probably be closer to the 8 cents of dilution. If we are at $150 million of those dispositions and they're called towards, you know, the latter part of the second quarter, we'll probably be more in the 4 cent range.

Second quarter will probably be more in the 4% range.

Speaker 2: on the remainder, I think that's just hard to tell, right?

On the remainder I think that's just hard to tell right I mean, that's just you know.

Speaker 2: It depends on the cap rates that we sell. It depends on what we would buy. It depends on timing, all that kind of stuff. I don't know, Ted, you might want to provide color in terms of what we're looking at. Look, as Brendan mentioned, we left a placeholder of zero to 200 million, both on additional dispositions on top of the remaining.

It depends on the cap rates that we sell it depends on what we would buy depends on timing all of that kind of stuff. So I don't know Ted do you might want to provide color in terms of what we're looking at and look as Brendan mentioned, we left a placeholder zero to 200 million both on additional dispositions on top of the remaining.

Speaker 3: 150 to 200 and then zero to 200 on acquisitions as well. So it's just a matter of what hits really. I mean, we're looking at the acquisitions that are in the market. We're underwriting several things right now, but who knows if we're going to be successful or not. So I would think if we get for successful on an acquisition, we'll match that with a disposition or whatever. So the timing and if we're successful, it's just hard to tell at this point.

The 150 to 200, and then zero to 200 on acquisitions as well. So it's just a matter of what hits really I mean, we're looking at the acquisitions that are in the market.

Underwriting several things right now, but you know who knows where we're going to be successful or not so I would think if we get for successful on an acquisition, we will match that with a disposition or whatever so the timing and if we're successful is just hard to tell at this point.

Okay.

Speaker 7: Thank you. And then Brian had mentioned a pretty competitive acquisition market. Can you maybe talk about

Thank you and then Brian had mentioned a pretty competitive acquisition market.

Can you maybe talk about.

Asset values in your market and cap rates and maybe some movement to just kind of.

Speaker 7: asset values in your markets and cap rates and maybe some movement to just kind of, you know, how they move.

How they've moved.

Speaker 7: to give us a better sense of what the investment market looks like.

Just to give us a better sense of what the market looks like.

Speaker 3: Sure. Anything high quality asset with long weighted average lease term, high credit, and certainly the new buildings.

Sure.

If anything our high quality asset with long weighted average lease term high credit and certainly the new buildings.

Speaker 3: The cap rates are pre or below pandemic levels. So sub, in that five range, we said we've had several trades in our markets in the force as well for some single tenant buildings.

The cap rates are pre or below pandemic levels. So sub.

In the five range, we said we've had several trades in our markets in the fours as well for some single tenant buildings, so incredibly competitive both from domestic capital sources, and our international capital as well or in our markets. So you know anytime you have high quality is going to be cheap.

Speaker 3: So incredibly competitive both from domestic capital sources and international capital as well or in our market.

Speaker 3: So anything of high quality is going to be chased very hard. On the value add side, I think the pool was not quite as deep.

It's very hard on the value add side I think so.

Pool was not.

Not quite as deep, but its still there its still deep enough to make a market and I think we've seen that on our own dispositions as well as a.

Speaker 3: But it's still there, it's still deep enough to make a market. And I think we've seen that on our own dispositions, as well as value add transactions that we're chasing in the market. I do think buyers are becoming more comfortable with the underlying fundamentals in markets so they're able to underwrite vacancy, maybe a little bit more aggressive. So it's just competitive all the way around out there right now, Jamie.

Value add transactions that were chasing in the market I do think buyers are becoming more comfortable with the with the underlying.

Allying fundamentals in markets, so they're able to underwrite vacancy.

Maybe a little bit more aggressive.

So it's just competitive all the way around out there right now Jamie.

Speaker 7: OK, thanks. And then last for me, can you just talk about your thoughts on retention? I know you said that occupancy is going to be dipping early in the year and then recover. How are you thinking about the expiration schedule and retention ratio?

Okay. Thanks, and then last for me can you just talk about your thoughts on retention I know you said that occupancy is going to be dipping early in the year and then recover how are you thinking about the exploration schedule and retention ratio.

Sure I can start and either Brian or Brendan can jump in I think from our exploration schedule I do think our retention might be a little bit lower this year than historically, but so the nice thing is we don't have a lot of large expirations. This year I think I've talked about on prior calls really nothing above the 100.

Speaker 3: Sure, I can start and either Brian or Brendan can jump in. I think from our expiration schedule, I do think our retention might be a little bit lower this year than historically, but the nice thing is we don't have a lot of large expirations this year. I think I've talked about on prior calls really nothing above 100,000 square feet.

<unk> thousand square feet expiring. This year you know our largest is 62000 feet. In December then we've got 50000 square feet in May and both are known Vacates, but we've got a strong prospect to backfill both of those with not a lot of downtime.

Speaker 3: We've got a lot of down time and we've got a lot of expiring this year. You know, our largest is 62,000 ft in December , then we've got 50,000 square ft in May. Both are known vacates, but we've got a strong prospect to backfill both of those with not a lot of down time. We're going to continue to work with the community to make sure that they're getting the best

Speaker 3: Then after that, it's a 44,000 square foot exploration in Pittsburgh that we know to vacate that we don't have any strong prospects at this point. So in general, just lower exploration schedule. I think our retention ratio is a little bit lower, but not way off historical levels.

Then after that it's a 44000 square foot exploration in Pittsburgh that we know the vacate that Oh, we don't have any strong prospects at this point. So in general just lower exploration schedule. Our I think our retention ratio is a little bit lower but but not way off historical historical low levels.

Yeah, Jamie the only thing I would just add to that is I mean normally we typically have a seasonal dip with respect to occupancy in the first quarter, just because we have a lot of leases that expire at the end of the year and invariably. Some of those are you know are not going to renew so we have a normal seasonal dip of typically 40 to 50 basis points in the first quarter or.

Speaker 2: Yeah, and Jamie, the only thing I would just add to that is, I mean, normally we typically have a seasonal dip with respect to occupancy in the first quarter just because we have a lot of leases that expire at the end of the year and invariably some of those are, you know, are not going to renew. So we have a normal seasonal dip of typically 40 to 50 basis points in the first quarter or first half of the year and then tend to build back up in the back half of the year. That is, our 2022 plan is consistent with that seasonal pattern or normal pattern and we do expect occupancy by the end of 2022 to be a little bit higher than where we ended 2021. So we think all those trends are positive for us in terms of what's happening from a leasing perspective throughout the portfolio.

First half of the year, and then tend to build back up in the back half of the year that is going to work. Our 'twenty 'twenty. Two plan is consistent with that seasonal pattern or a normal pattern and we do expect occupancy by the end of 'twenty two to be a little bit higher than where we ended 21. So we think all of those trends are positive for us in terms of what's happening.

From a leasing perspective throughout the portfolio Jamie Brian here, just a follow on to both what Ted and Brendan just said work.

Speaker 4: Jamie Bryan here just to follow on to both what Ted and Brendan just said were

Speaker 4: highly focused and arguably aggressive on retention looking into the future. So you may have noticed in the past quarter's term was a little shorter. We're actually talking to a number of customers that are renewing years in advance. Now, it's only maybe a three-year extension, you know, so we're getting them, picking up on 23, 24, and they're pushing out three or four years. And so that is

<unk> focus and arguably aggressive on retention looking into the future. So you may have noticed in the past quarters.

Term was a little shorter where we're actually talking to a number of customers that are renewing years in advance now it's only maybe a three year extension you know so we're getting them picking up in 'twenty, three 'twenty, four and they're pushing out three or four years and so that is pulling down that term, but we're being.

Speaker 4: pulling down that term, but we're being direct with them. A lot of them are excited about coming back into the space and want to reposition their space, want to upgrade their space as they bring people back, and they're seeing the space as an opportunity to recruit folks and return them. So that's also another kind of nuance that's coming out of some of our focus on renewals. That's a good point.

Direct with them a lot of them are excited about coming back into the space and want to reposition their space went to upgrade their space.

As they bring people back and they're seeing the space as an opportunity to recruit folks and return them. So that's also another no kind of nuance that's coming out of some of our focus on renewals.

That's a good point so he did that show up in your four key leasing value.

Yes.

Speaker 4: I mean, it does. Primarily on that shorter term that you're seeing is being driven partly by that.

Yeah, I mean it it it it does it primarily on that that shorter term that you're seeing is being driven partly by by that its not you know it was about 20% or so of that kind of approach, but it's something we're going to continue to do we found some good success with it and we're going to continue to maintain.

Speaker 4: It's not a, you know, it was about 20% or so of that kind of approach, but it's something we're going to continue to do. We found some good success with it, and we're going to continue to maintain those conversations with our customers going forward. We're not going to apologize for kind of extending someone out years ahead and keeping them in the space. It's kind of a bad joke among the leasing team when I have the leasing calls.

Those conversations with our customers going forward, we're not going to apologize for kind of extending someone out years ahead and keeping them in the space, It's kind of a bad joke among the leasing team when I have had the leasing calls.

Speaker 4: I say to them, I feel much more confident about renewing someone who's in the portfolio than is not. So we're taking that approach.

I say to them I feel much more confident about renewing someone who was in the portfolio. Then it's not so we're taking that approach.

Okay and then the.

Pittsburgh move out when does that hit.

Speaker 3: That is in September this year.

That is in.

September this year.

Speaker 7: OK. All right, great. Thanks for all the color. Thank you, James.

Okay, Alright, great. Thanks for all the color. Thank you Jamie.

Yeah.

Thank you. The next question comes from Rob Stevenson of Janney. Please go ahead.

Speaker 8: Thank you. The next question comes from Rob Stevenson of Jannie. Please go ahead. Good morning, guys. Can you talk about where parking revenues were in fourth quarter 21 versus 19? And then also how much additional expenses are there as that ramps back up? In other words, for each million dollars of incremental parking revenues that come in the door, how much incremental expenses do you have associated with that?

Good morning, guys can you talk about where parking revenues were in fourth quarter 'twenty one versus 19, and then also how much additional expenses are there as that ramps back up in other words for each million dollars of incremental parking revenues to come in the door how much incremental expenses do you have associated with that.

Speaker 2: Hey Rob, it's Brendan. So yeah, I would say parking revenues, we're kind of running probably, you know, a fast.

Hey, Rob it's Brendan so yeah, I would say parking revenues were kind of running.

Probably you know about.

Speaker 2: million a quarter below where we thought we would be at the onset of the pandemic on a same property basis.

A million a quarter below where we thought we would be at the onset of the pandemic on a same property basis. So it's it's certainly gotten better we've improved from the depths of 2020, but not not all the way back there so theres, probably another $4 million or so.

Speaker 2: It's certainly gotten better. We've improved from the depths of 2020, but not all the way back there. So there's probably another four million or so to go. And I think the vast majority of that revenue line is gonna fall to the NOI line. So there's not a lot of incremental costs associated with additional revenue.

To go and I think the the vast majority of that revenue line is going to fall to the NOI line. So theres not a lot of incremental costs associated with additional revenue.

Speaker 8: Okay, so you're basically down about four cents a share given your shares outstanding in rough numbers in terms of parking revenue still on an annual basis. Yeah, that's right. Okay, and then how significant is the amount of your space that existing tenants are currently looked to sublease at this point.

Okay. So youre basically down about four cents a share given your shares outstanding and rough numbers in terms of parking revenue is still on an annual basis, Yeah. That's right. Okay.

Okay.

And then how significant is the amount of your space that existing tenants are currently look to sublease at this point.

Speaker 4: Hey, Rob. Brian , I got my finger stuck on the mute button. Couple things. Just from a broad perspective, sublet space is down across our markets. There is one.

Hey, Rob Brian I got my fingers stuck on the mute button.

Couple of things just from a broad perspective, sublet space is down across our markets. There is one.

Speaker 4: a single user in Tampa, kind of a university, medical university that has gone remote in the near term. And so that has kind of made the biggest move on our numbers, but it's still trending down. So I would say we're down probably across our total market is about 4 percent. And then within Highwoods, it's just slightly ticked up. So in terms of percent, what's your kind of...

All user and Tampa I'm kind of a University medical University that has gone remote in the near term and so that is kind of built it made the biggest move on our numbers, but it's still trending.

Trending down so I would say, we're down probably across our total market is about 4% and then within Highwood. It's just slightly ticked up so in terms of a.

Percent Brentwood sure kind of your number on that one it's there's still a very small amount.

Speaker 4: your number on that one. It's still a very small amount within the portfolio and holding steady. And we're seeing good movements. You see in Atlanta going down. You're seeing most of them across the board. Tampa was the one spot where we had it.

Within the portfolio and holding steady and we're seeing good movements youre seeing Atlanta going down.

Most of them across the board again, Tampa was the one spot where we had it.

Go up.

Speaker 8: Okay, so you wouldn't say that it's an overhang on your leasing existing vacancy at this point.

Okay. So you wouldn't say that it's an overhang on your leasing existing vacancy at this point.

Speaker 8: No, you're not. Being competitive with tenants trying to sublease space at a lower, possibly a lower rate than what you're offering.

Competitive with tenants trying to sublease space at a lower and possibly a lower rate than what you're offering.

Speaker 2: No, we're not. Yeah, Rob, I mean, it's in the, I mean, we're, we're, we're call it probably 5%, maybe a little bit less in terms of just kind of overall space that would be available for sublets. So it's a very small portion of the portfolio. And Rob, just to jump in, a lot of the sublease space has pretty short term on it. So it's just not necessarily compare...

No. We're not yeah brought I mean, it's in the I mean, we're we're call it probably 5% maybe a little bit less in terms of just kind of overall space that would be available for sublet. So it's a very small portion of the portfolio and Rob just jumping in a lot of the sublease space is pretty short term on it. So it's just not necessarily competitive with a lot of our our vape.

Speaker 3: with a lot of our vacant space. It's just hard for owners once you get below two years to sublease their space. So we do have some that have some longer term on it that would be competitive, and we've lost a couple deals over the last couple years, probably less than a handful. But most of the subway space just isn't competitive to our vacant space. The last little thing on that is typically you might have to write a check as kind of the...

<unk> space, it's just hard for owners once you get below two years to sublease their space. So we do have some.

And some longer term on it that would be competitive and we've lost a couple of deals over the last couple of years, probably less than a handful, but most of the sublease space just isn't competitive to our vegan space that last little thing on that is typically you might have to write a check as the kind of the the lessor for sublease to deal and so all of that.

Speaker 4: the lessor for a sublease deal. And so a lot of the folks who are putting space on the market don't want to necessarily write a check to move someone in there either. So that's kind of one of the things we're seeing in the sub.

The folks who are putting space on the market don't want to necessarily write a check to move someone in there either so that's kind of one of the things we're seeing in the sublet market.

Speaker 8: Okay, and then how much of the 150 to 200 million of first half dispositions do you guys already either have under contract or letter of intent at this point? I mean what's the likelihood that that is sort of more first quarter weighted than second quarter weighted in terms of the four to eight cents of dilution?

Okay and then how.

How much of the $150 million to $200 million of first half dispositions do you guys already either have under contract or letter of intent at this point I mean, what's the likelihood that that is sort of more first quarter weighted than second quarter weighted in terms with a four to eight cents of dilution.

Yeah. So we don't have any of it under contract yes, we do have some out in the market.

Speaker 3: Yeah, so we don't have any of it under contract yet. We do have some out in the market and we're talking with potential buyers on some of it, but none of it is under contract. But we do feel comfortable, you know, we're going to hit that 150 to 200 by mid-year. And we'll have probably just about everything out in the market in the next few weeks of what we plan to sell. So still feel comfortable to get it, but likely going to be towards the back half of the second quarter.

And we're talking with potential buyers on some of it but there is none of it is is under contract, but we do feel comfortable we're going to hit that 150 to 200 by by mid year and will have probably just about everything out in the market in the next in the next few weeks of what we plan to sell so I still feel comfortable will get.

It's likely going to be towards the back half of the second quarter.

Speaker 2: Just remember, Rob, we thought what we said for 2021 was $250 to $300 million of dispositions that we expected there. We ended up doing $353. So we were at the midpoint $75, $80 million ahead of our 21 plan. So the 2022 plan was probably to have a fair portion of that $75 to $80 million kind of occur.

Okay, and just remember Rob I mean, we we thought what we said for 2021 was $2 50 to 300 million of dispositions that we expected. There. We ended up doing $3 53. So we were at the midpoint $75 million to $80 million ahead of our 'twenty one plan so that the 2022.

<unk> was was probably to have you know a fair portion of that $75 million to $80 million kind of occur.

Speaker 2: you know, in the middle to early part of the first quarter, we accelerated that into 21. And so the 22 stuff is naturally just going to hit a little bit later in the first half of the year.

In the middle or early part of the first quarter, we accelerated that into into 'twenty, one and so the 22 stuff is naturally just going to hit a little bit later than that in the first half of the year.

Speaker 8: Okay, and then one quick one. Are there any incremental mark retirement costs in 2022? Was that all taken in 2021? No, zero. Okay.

And then one quick one are there any incremental mark retirement costs in 2022 was that all taken in 2020 one.

No zero.

Okay. Thanks, guys. Appreciate the time thank you.

Okay.

Speaker 5: Thank you. The next question is from Emmanuel Kurchman of Citi. Please go ahead.

Thank you. The next question is from Emmanuel Korchman of Citi. Please go ahead.

Hey, good morning, everyone.

Speaker 9: Hey, good morning everyone. Brian , maybe this is a follow-up to your earlier comment. Just if we think about the differentiation of quality and the different demands from tenants for that difference in quality.

Brian maybe just a follow up to your earlier comment.

Just if we think about the differentiation of quality and the different demand from tenants for that difference in quality.

Speaker 9: How does that get defined in your markets? Is it location, is it age of asset, is it amenity? I assume you'll say all of that. So help us figure out like as we think about quality, how your tenants think about it. And second to that, what happens to the not prime product in these markets? Is it just more capital is pumped in to make it prime product or is a conversion of use the more likely task?

How does that.

Get defined in your markets is it location is it age of asset is an amenity.

I will say all of that so help us figure out like as we think about quality.

How are your tenants think about it and second to that what happens to the not prime product in these markets is it just more capitals pump tend to make it prime product or.

Is a conversion of use the more likely path.

Great Great question and thanks for asking the first I think the from a quality standpoint right now it's it's convenience.

Speaker 4: Great question and thanks for asking. First, I think that from a quality standpoint right now, it's convenience and amenity, right? And so,

And amenity right and so.

Speaker 4: I do believe what we've heard in talking to customers is that they want to get back in the office. They're all coming back at different times and depending how big they are.

I do believe what we've heard in talking to customers is that they do they want to get back in the office now Theyre all coming back at different times and depending on how big they are.

Speaker 4: you know, multi-city or multi-national, they're a little more conservative because when they move, you know, there's a ripple effect across there, but a small or medium size or...

Multi.

City or multinational they're a little more conservative because when they move you know, there's a ripple effect across there, but the small or medium size or are back and those that.

Speaker 4: or back in. Those that believe in space, they all see it as a competitive advantage to bringing their talent in. So as I mentioned on my remarks...

Believe in space, they all see it as a competitive advantage to bringing their talent and so as I mentioned on my remarks, we absolutely believe it's both urban and suburban and so you are seeing or suburban offices as Ted noted there are fuller than.

Speaker 4: We absolutely believe it's both urban and suburban. And so, you know, you are seeing our suburban offices, as Ted noted, they're fuller than the high rises.

The high rises.

Speaker 4: in central business districts just because they're so much more convenient, they have access to fresh light and park space and things like that. So it is a little bit of...

In central business districts, just because there's so much more convenient or have access to fresh light and park space and things like that so it is a little bit of.

Speaker 4: and all of the above. I hate to say that. Obviously the buildings tell a story of...

All of the above.

To say that obviously the buildings.

You know they tell a story of health and wellness LEED certification fit well with what we're doing on the new development food and beverage is a big driver of making sure that's convenient and access to the outdoors is something that we're also focused on that the last thing I'll add to the quality component is having a bit of flexibility built in.

Speaker 4: Health and wellness lead certification, FitWell is what we're doing on the new development. Food and beverage is a big driver. Making sure that's convenient and access to the outdoors is something that we're also focused on. The last thing I'll add to the quality component is having a bit of flexibility built into either a building or a park or kind of adjacent from a portfolio standpoint.

Into either a building or a park or kind of adjacent from a portfolio standpoint, and so we've talked about our spec suite program before we've talked about kind.

Speaker 4: And so we've talked about our Spec Suite program before. We've talked about kind of coworking before. We do see users coming back and wanting to be able to flex in and out of their space, primarily for larger gatherings, town halls, things like that. And so we're seeing more requests for that as we bring people back.

Kind of co working before we do see users coming back and wanting to be able to flex in and out of their space, primarily for larger gatherings town halls things like that and so we're seeing.

You know more request for that.

As we bring people back tend to leave anything out on that maybe the only thing I would add is I think we're also seeing a migration that quality owners long term owners, who are willing to reinvest in their assets and they're not necessarily the quality is not necessarily the newest and shiny if the assets either it's it's you know billings are in great locations and I think.

Speaker 3: Can I leave anything out on that maybe? The only thing I would add is I think we're also seeing a migration of quality owners, long-term owners who are willing to reinvest in their assets. And they're not necessarily the quality, they're not necessarily the newest and shiniest assets either.

Speaker 3: It's, you know, buildings are in great locations. And I think we're, this flight to quality is really playing out. We're seeing in our portfolio, Manny, I think, you know, last quarter, I mentioned it on summarized in my prepared remarks, you know, last quarter, we find a last year 2021 we find 194 new leases highest we've done since 2006.

We are this flight to quality is really playing out we're seeing in our portfolio Manny I think last quarter I mentioned it on summarized in my prepared remarks last quarter, we find out for last year 2021, We signed 194, new leases highest we've done since 2006, when you add that add to that.

Speaker 3: Then you add to that, we signed 18 in our development portfolio, for development projects, 18 leases as well. And so 212 new customers to Highwoods that want to come into our portfolio. So I think we're benefiting from the flight to quality.

We signed 18 in our <unk>.

Development portfolio for development projects 18 leases.

As well and so 212, new customers to Highwood that want to come into our portfolio. So I think we're benefiting from a flight to quality.

Speaker 9: And then I'll remind you on the second part of the question is what happens to the non-quality assets, whether it be the ones that get vacated or the ones that have been vacated.

And then I'll remind you and the second part of the question is what happens to the non quality assets, whether it be the ones that I gave vacated or the ones that have been taken.

Speaker 3: Yeah, look, I think it's going to be a conversion in some cases. I think you've probably seen there's been a few big buildings that have sold and been converted to are going to be converted to industrial. I think you're going to see some multifamily conversions, maybe some hotel conversions over time as well. So I think it all depends on where the lower quality product is is is located and what the highest and best use is going forward.

Yeah look I think it's going to be a conversion in some cases I think you've probably seen there's been a few big.

Buildings that are sold and converted to we're going to be converted to industrial I think youre going to see some multifamily conversions, maybe some hotel conversions over time as well. So I think it all depends on where the lower quality product is is is located and what the highest and best use is going forward.

Speaker 4: One last little thing, Manny, on that is you're also seeing kind of a densification in addition of mix of uses.

One last little thing Manny on that as you're also seeing kind of a densification. In addition, a mix of uses around some of these assets. So in many cases, they're well located but might have either age or you know kind of a mouse trap is little different than what you might build more recently and so we're seeing a surface parking lot.

Speaker 4: around some of these assets. So in many cases they're well located but might have either age or you know kind of the mousetrap is a little different than what you might build more recently and so we're seeing surface parking lot converted into structured parking with multi-family. You're seeing retail added and that seems to be them kind of doubling down on on place and location location location is still a pretty strong amenity.

Put it into a structured parking with multifamily youre seeing retail added.

And that seems to be kind of doubling down on on place and location location location is still a pretty strong amenity.

Thanks, everyone.

Thank you.

Speaker 5: The next question comes from Dave Rogers of Baird. Please go ahead.

The next question comes from Dave Rodgers of Baird. Please go ahead.

Speaker 8: Yeah, good morning everybody. Ted and Brian , I think early on in the prepared comments, you said 40% utilization driven by smaller and suburban tenants. I was curious, two questions, one on the vacancy leasing. Is that also being driven by CBD or suburban? Is there a clear distinction kind of between where the new leasing is happening or is it following really the utilization? And I guess the second question is on RFP and tour activity that you mentioned is up. How does that compare to pre-pandemic levels, Brian ?

Yes, good morning, everybody and Brian I think early on in the prepared comments, you said, 40% utilization driven by smaller in suburban tenants I was curious two questions. One on the vacancy leasing is that also being driven by CBD or suburban is there a clear distinction between where the new leasing is happening or is it.

Following really the utilization of that I guess the second question is on RFP and tour activity that you mentioned is up how does that compare to pre pandemic levels Brian .

Speaker 4: Great, great questions. First on the urban and suburban now, there's a little bit of a footnote on my answer is that a good deal of the leasing activity has been suburban.

Great Great questions first on the urban suburban now is there's a little bit of a footnote on my answer is that a good deal of the leasing activity has been suburban actually greatly so but that's also where we have the ability to do that leasing so a lot of our the urban was.

Speaker 4: greatly so, but that's also where we had the ability to do that leasing. So a lot of our the urban was had a higher occupancy too. So you had that kind of corporate occupancy in the urban locations that was a bit of a ballast if you will and we were able to do a good deal of suburban so that's I think that's part of it.

At a higher occupancy too. So you have that kind of corporate occupancy and the urban locations that was a bit of a balanced if you will and we were able to do a good deal of suburban so that's I think that's part of it.

Speaker 4: Ted, you wanted to kind of staple on to that?

Ted you wanted to kind of staple on to that now.

No I think that's it I think we can only leaves the space. We are vacant so it's been heavily suburban side in the past to them. We don't have as a company a lot of large vacancies either so it has been a lot of small small customers. This past year, which obviously goes to the 194 a lot of those were smaller customers, but a pretty.

Speaker 3: No, I think that's it. I think we can only lease the space we have vacant. So it's been heavily suburban side in the past 12. We don't have as a company, a lot of large vacancies either. So it has been a lot of small, small customers this past year, which obviously goes to the 194. A lot of those were smaller customers, but I think it pretty much covers it.

Covers it.

Alright, that's fair and then the RFP and tour activity, maybe versus pre pandemic levels on a like for like basis, how does that compare sure absolutely. Thanks for the reminder, I knew there was a second part to that so.

Speaker 8: All right, that's fair. And then the RFP and tour activity maybe versus pre pandemic levels on a like for like basis. So, you know, how does that compare? Sure, absolutely. Thanks for the reminder. I knew there was a second part to that. So

Speaker 4: So let's all go back to the first week of March of 2020. It felt like the economy was hitting on all cylinders and things were going well. So I think we had a good amount then. But at the same time, I feel like, it sure feels like right now the RFP in tours equal that. Let me tell you why. Because I think a lot of customers are now viewing their workplace.

So since you know, let's all go back to the first week of March of 'twenty 'twenty. It felt like the economy was hitting all on all cylinders and things are going well. So I think we are we had a good amount of them, but at the same time I feel like it sure feels like right now the RFP in tours equal that no. Let me tell you why because I think a lot.

Of customers are now viewing their workplace.

Speaker 4: It has to be a tool. It has to be part of their competitive advantage to not only retain and recruit talent, but to return that talent.

And that has to be.

A tool.

Has to be part of their competitive advantage to not only retain and recruit talent, but to return that talent.

Speaker 4: So they've made the decision that we have got to upgrade our workplace story and our workplace.

So they've made the decision that we have got to upgrade our workplace story in our workplace.

Hum.

Speaker 4: from an asset standpoint. And so we're getting inbounds for folks that would probably lean in before they might have just wanted to be a tenant in someone else's building. They're leaning in to create.

From an asset standpoint, and so we're getting inbounds for folks that you would probably lean in before they might have just wanted to be a tenant in someone else's building, they're leaning in to create a workplace and whats interesting is that to build a new building today with escalations inflation some guys.

Speaker 4: And what's interesting is that to build a new building today with escalations, inflation, some kind of podium parking, it is not inexpensive. And so what you're seeing.

Podium parking it is not inexpensive and so what you're seeing is.

Speaker 4: customers issuing RFPs, engaging in a process, whittling it down with clear visibility in the rent premiums that are gonna need to be paid to achieve this work.

Customers issuing rfps engaging in a process whittling it down with clear visibility in the near the rent premiums that are going to need to be paid to achieve this workplace and I know I'm gonna be kind of label. It was a broken record, but it's bearing fruit and the whole you know.

Speaker 4: And I know I'm going to be kind of labeled as a broken record, but it's bearing fruit. And the whole, you know...

Speaker 4: kind of a cliche of the one nine ninety right customers uh... that don't build a gigantic power plants and things like that one percent of their annual revenues is on utilities nine percent on real estate ninety percent on people are realizing how

Kind of a cliche of the one 990 right customers that don't build gigantic power plants and things like that 1% of their annual revenues is on utilities, 9% on real estate, 90%, so on people and they're realizing how.

Speaker 4: important than 9% can be to bring back their 90% and make them collaborative and to continue that culture. We don't have any to announce, but we're seeing that.

Important for 9% can be to bring back their 90 per cent and make them collaborative and to continue that culture. So we're seeing now we don't have any to announce or but we're seeing that that price to pay the premium for great workplace is something that these.

Speaker 4: that price to pay the premium for a great workplace is something that these companies are bearing. So I'd say we're right on it right now. It feels very similar. Now, are we getting exercised and what will happen by the end of the year? Time will tell. It'll be interesting to ask the same question at the end of the year and see which ones came to rut.

These companies are bearing so I'd say, we're right on it right now it feels very similar now are we be getting exercised and what will happen by the end of the year time will tell it would be interesting to ask the same question at the end of the year and see which ones came to roost.

Thanks for all that color, Brian I really appreciate it and then Ted maybe just last for you on the dispositions. It's been asked a couple of times, but I guess I wanted to get better color are you moving forward with the dispositions, regardless or is it the acquisitions and the development that will drive the dispositions I guess I heard it two different ways on the call and I was just kind of curious on kind of what comes first in the or.

Speaker 8: Thanks for that, color. Brian , I really appreciate it. And then, Ted, maybe just last for you on the dispositions. It's been asked a couple of times, but I guess I wanted to get better color. Are you moving forward with the dispositions regardless, or is it the acquisitions and the development that will drive the dispositions? I guess I heard it two different ways in the call, and I was just kind of curious on kind of what comes first in the order of magnitude for your investment strategy right now for the additional sales.

Or a magnitude for for your investment strategy right now for the additional sales.

Speaker 3: Yeah, so obviously we're definitely moving forward with the 150 to 200. So that'll get done just to finish up the vortex transaction to match fund that. The remaining, you know, zero to 200, look, I think that'll likely you know be dependent on if we find investment opportunities, whether it be development or acquisitions.

Yeah. So obviously, we're definitely moving forward with the $1 50 to 200, so that'll get done just to finish up the vortex.

Transaction to match fund that the remaining 200 look I think that'll likely.

Be dependent on if we find investment opportunities, whether it be development or acquisitions.

Okay. Thanks, everyone.

Thanks, Dave.

Speaker 5: Thank you. The next question comes from Ronald Kander of Morgan Stanley . Please go ahead.

Thank you.

The next question comes from Ronald Camden of Morgan Stanley . Please go ahead.

Hey, just wanted to follow up on the expenses question, maybe asking it a little bit of a different way, maybe a little bit more color on.

Speaker 7: Hey, just want to follow up on the expenses question, maybe asking it a little bit of a different way, maybe a little bit more color on just what are the line items that are driving it? Is it like cleaning, utilities, like things like that? And then is it sort of spread out across the portfolio or is there certain markets maybe that have the lion's share of that would be helpful? Thanks.

Just what are the line items are that are driving it is it like cleaning utilities like things like that and then is there is it sort of spread out across the portfolio or are there certain markets, maybe that that have the lion's share of that would be helpful. Thanks.

Speaker 2: Yeah, hey Ron, good morning. So it's really, I mean, I guess I would put it into, let's just put it into maybe two main buckets, right? So there's taxes, which are, you know, we're certainly seeing those increases across a number of our municipalities. So that's part of it. And then really it's sort of just the building operating expenses, the day-to-day, right? And so most of the day-to-day stuff is increasing because our customers are coming back to the buildings. And so it's just sort of getting back to normal operations. There is some, you know, certainly inflation is higher now than it has been for a number of years. So there's a little bit of inflationary pressure that's on there, but the vast majority of the increase that we're absorbing, that we expect to absorb and not get recovery on is really just getting those OPEX, those building operations kind of back to normalized levels.

Yeah, Hey, Ron Good morning, So it's really I mean, I guess I would put it into like let's just put it into maybe two main buckets right. So there's taxes, which are you know, we're certainly seeing those increases across a number of our municipalities. So we're we're that's part of it and then really it's sort of just the building operating.

Spencers the day to day right and so most of the day to day stuff is increasing because our customers are coming back to the buildings and so it's just sort of getting back to normal operations. There is some.

You know certainly inflation is higher now than it has been for a number of years, so theres a little bit of inflationary pressure that's on there.

But the vast majority of the increase that we're absorbing that we expect to absorb.

And not get recovery on is really just getting those opex those building operations kind of back to normalized levels.

Great. That's all my questions. Thank you so much.

Speaker 7: Great. That's all my questions. Thank you so much. Thanks.

Thank you.

Our final question comes from Daniel Ismail of Green Street. Please go ahead.

Speaker 5: Our final question comes from Daniel Isbell of Green Street. Please go ahead.

Speaker 10: Great, thank you. Ted, I believe you stated previously that net effective rents across your markets are probably down around 5 to 10% from pre-COVID highs. I'm curious about your outlook for net effective rent growth in 2022. Are you anticipating a recovery to pre-COVID levels or is that still a 2022 timeframe?

Great. Thank you.

We paid the previously.

Net effective rents across your markets are probably down around 5% to 10% from pre Covid hi.

Curious if your outlook for net effective rent growth has been 22 are you anticipating a recovery to pre COVID-19 levels.

Hi, Brad.

Sure Danny Youre right I think we've said you know 5% to 10% I think it's probably right at the maybe the lower end of that now right in the middle mid mid single digits.

Speaker 3: Sure, Danny, you're right. I think we've said, you know, 5 to 10 percent. I think it's probably right at the maybe the lower end of that now, right, you know, mid single digits.

Speaker 3: Look, I do think it's going to come back, but it's going to take time. It's going to be varied by market. You know, the market's competitive still, right? And there's still pressure on TI's.

Down look I do think it's going to come back, but it's going to take time, it's gonna be vary by market.

You know the market's competitive still right in that there's there's still pressure on tea is both from a competitive standpoint, but then it just costs more on top of that and then free rent as well. So I think it's going to come back.

Speaker 3: both from a competitive standpoint, but then it just costs more on top of that, and then free rent as well. So I think it's going to come back.

Speaker 3: maybe differently or different cadence by market.

Maybe dip.

Different way or a different cadence by market.

Speaker 3: Certainly we're seeing already rent increases occurring in Nashville. That does come with corresponding increases in TI's. But I would hope we've hit the bottom and we're going to be starting our way back to get to pre-pandemic levels. Look, we're not there yet and again there's increased pressure on cost.

Certainly we're seeing already rent increases occurring in Nashville that does come with corresponding increases in <unk>, but I would hope we've hit the bottom and we're gonna be starting our way back to get to pre pandemic levels, but look we're not there yet and there's you know again theres increased pressure on cost.

Great and then can you remind us what are contractual rent bumps are today in the portfolio and then maybe.

Speaker 10: Great. And then can you remind us what contractual rent funds are today in the portfolio? And then maybe what are you guys negotiating for contractual bonds for today's week?

What are you guys are negotiating for contractual.

Bumps for today.

Yeah, Danny so we're in the mid twos, just kind of broadly across the portfolio.

Speaker 2: Yeah, Danny, so we're in the mid twos just kind of broadly across the portfolio. That's been very steady, I would say throughout the pandemic. So it's, you know, it really didn't dip too much. And actually this quarter, we were higher than that in terms of those leases signs, I think we were at 2.7%. So a little bit higher than the average. So we've been successful kind of increasing those those annual bumps a little bit. But that has certainly been, you know, been helpful in terms of those net effective that we're able to keep capturing annual rent bumps across virtually all of our leases.

That's been very steady I would say throughout the.

The pandemic. So it's a you know it really didn't dip too much and actually this quarter, we were higher than that in terms of those leases signs I think we were at two 7%, so a little bit higher than the average. So we've been successful of kind of increasing those those annual bumps a little bit but that that that has certainly.

Ben you have been helpful. In terms of those net effect is that we're able to keep capturing annual rent bumps across virtually all of our leases.

And then Brendan maybe since I have you on I appreciate all the details on the operating side.

Speaker 10: And then maybe, Brendan, maybe since I have you on, I appreciate all the details on the operating defense side. Maybe just going back to the split between Triple Nets and full-service gross leases. Is there any interest in pivoting more towards Triple Net leases or is this beholden to market convention that you guys are responding to?

Maybe just going back to the split between Triple net and full service growth.

Is there any interest in pivoting more towards triple net leases or is it.

Behold into a market convention that you guys are.

Responding to you.

Speaker 2: Yeah, I mean it depends. I mean I think we do often push for triple net leases and do get those often. The one thing I'd like to just you know mention is full service leases have actually been beneficial to us over time because over time we have typically been able to control expenses and often reduce expenses and those reduced expense levels accrue to our benefit. So it's only been we and and I think

Yeah, I mean, it depends I mean, I think we do often push for triple net leases and do get those often but the one thing I'd like to just mention is full service leases have actually been beneficial to us over time because over time, we have typically been able to control expenses and off.

And reduce expenses and those reduced expense levels accrue to our benefit. So it's only been we and I think we we received a lot of benefit from lower operating expenses in 2020 , one as as Opex was low and building utilization was low and that Hell.

Speaker 2: We received a lot of benefit from lower operating expenses in 20 and 21 as OPEX was low and building utilization was low. And that helped offset a lot of the decline in parking revenue in both 20 and 21. Now as expenses kind of come back up, then we are absorbing that increase. But keep in mind, we got the benefit. So we're really just getting back to kind of normal. So over time, full service leases have actually worked well for us.

<unk> offset a lot of the decline in parking revenue in both 2020 . One now as expenses kind of come back up then we are absorbing that increase but keep in mind. We got the benefit. So we're really just getting back to kind of normal so overtime full service leases have actually worked well for us because we've enjoyed.

The benefit of our control on Opex and I think if you look at our same property growth over time typically we've had same property NOI growth that has outpaced our same property revenue growth because we've been able to control those expenses. So we often I mean, we will push for triple net lease.

This is where we feel like we can get them, but full service leases for US typically are you know are not problematic and we are protected on increased expenses as long as those expenses are above the base year expense.

Speaker 2: expenses as long as those expenses are above the base year expense.

Speaker 10: Got it. Appreciate all the details. Thanks. Thank you, man. Thank you..

Got it I appreciate all the detail.

Thank you.

Yeah.

That was our final question I'll turn the call back over for any closing remarks.

Speaker 3: I just want to thank everybody for being on the call with us this morning and thank you for your interest in Highwoods. If you have any follow-up questions, please feel free to reach out. Thank you.

Well I just want to thank everybody for being on the call with US. This morning, and thank you for your interest in Hi, Woods do you have any follow up questions. Please feel free to reach out. Thank you.

Speaker 5: Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.

Speaker 5: Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.

Thank you. This does conclude the conference call for today, we thank you for your participation and ask you. Please disconnect. Your lines. Thank you and have a good day.

Speaker 11: SP thankfully another

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