Q4 2023 Highwoods Properties Inc Earnings Call

Bruno: Hello, everyone, and welcome to the Highwoods Properties fourth quarter 2023 earnings call. My name is Bruno, and I'll be operating your call today. During the presentation, you can register to ask a question by pressing the star followed by one on your telephone keypad.

Hello, everyone and welcome to the <unk> properties fourth quarter 2023 earnings call.

Bruno: My name is Bruno and it'll be operating your call today.

Bruno: During the presentation you can bridge to ask a question by pressing star followed by one on your telephone keypad.

Anna True: I will now hand over to your host, Anna True. Please go ahead. Thank you, operator, and good morning, everyone. Joining me on the call this morning are Ted Klinck, our Chief Executive Officer; Brian Leary, our Chief Operating Officer; and Brendan Maiorana, our Chief Financial Officer. For your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplemental, they are both available on the Investors section of our website at Highwoods.com. On today's call, our review will include non-GAAP measures such as FFO, NOI, and EBITDAIR. The release and supplementary include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.

Bruno: I will now hand over to your host Anna Truth. Please go ahead.

Anna Truth: Thank you operator, and good morning, everyone.

Anna Truth: Joining me 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 Change: For your convenience today's prepared remarks have been posted on the web.

Speaker Change: 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.

Speaker Change: Today's call. Our review will include non-GAAP measures, such as <unk> NOI and EBITDA there the release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.

Anna True: The forward-looking statements made during today's call are subject to risks and uncertainties. These risks and uncertainties are discussed at length in our press releases as well as in our SEC filings. 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 said, I'll turn the call over to Ted. Thanks, Anna. Good morning, everyone.

Speaker Change: Forward looking statements made during today's call are subject to risks and uncertainties. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings as you know actual events and results can differ materially from these forward looking statements and the company does not undertake a duty to update any forward looking.

Speaker Change: Statements with that I'll turn the call over to Ted.

Theodore J. Klinck: Thanks, Diana and good morning, everyone.

Theodore J. Klinck: Before I talk about our solid financial and operating results for 2023, let me start by first outlining our strategic priorities for the next several years. First, we will continue to improve the quality of our portfolio. We are laser-focused on owning a portfolio that is resilient throughout all business cycles, well-positioned to attract, retain, and return our customers' most valuable resources, their employees, to the workplace. We do this by developing best-in-class properties, acquiring high-quality assets with attractive risk-adjusted returns, redeveloping and repositioning well-located properties where substantial upside exists, and selling buildings that no longer meet our criteria Second, we are focused on solidifying our rent role and driving future occupancy. This means proactively renewing customers as early and prudently as possible and backfilling pockets of vacancy within the portfolio. We continue to be bullish on the long-term demographics of the sunbath industry.

Theodore J. Klinck: Before I talk about our solid financial and operating results for 2023.

Theodore J. Klinck: We start by first outlining our strategic priorities for the next several years.

Theodore J. Klinck: First we will continue to improve the quality of our portfolio. We were laser focused on owning a portfolio that is resilient throughout all business cycles, well position to attract retain and return our customers most valuable resource their employees to their workplaces, we do this by.

Theodore J. Klinck: Developing best in class properties, acquiring high quality assets with attractive risk adjusted returns redevelopment and repositioning well located properties were substantial upside exists.

Theodore J. Klinck: Selling buildings that no longer meet our criteria.

Theodore J. Klinck: Second we are focused on solidifying our rent role in driving future occupancy.

Theodore J. Klinck: This means proactively renewing customers as early and prudently as possible and backfill in pockets of vacancy within the portfolio.

We continue to be bullish on the long term demographics of the sunbelt.

Theodore J. Klinck: Simply put, we are in the best markets and the best business districts to create long-term value for our shareholders. Third, we are laying the groundwork for future investment opportunities. We believe this cycle will present us with opportunities to create shareholder value by acquiring high-quality assets in the BBDs of high-growth markets. We will be patient, and we will be ready.

Theodore J. Klinck: Simply put we are in the best markets and best business districts to create long term value for our shareholders.

Theodore J. Klinck: Third we are laying the groundwork for future investment opportunities.

Theodore J. Klinck: We believe this cycle will present us with opportunities to create shareholder value by acquiring high quality assets in the bvd of high growth markets.

Theodore J. Klinck: We will be patient and we will be ready.

And fourth we will continue to maintain a best in class balance sheet.

Theodore J. Klinck: We will continue to maintain a best-in-class balance. As demonstrated over the past 90 days, having ample liquidity and access to multiple sources of capital throughout the cycle is an important differentiator for us. We made meaningful progress in all of these strategic priorities during 2023. We sold over 100 million of non-core properties, including land, and made solid progress on our development pipeline with the completions of 2827 Peachtree, Granite Park 6, and Glen Lake 3. We expect these developments will provide meaningful growth in future years as they stabilize. Furthermore, we completed significant highway tithing projects on existing buildings in Nashville and Rowan, where we're already generating higher rental rates and increased leasing activity. We also made progress solidifying our future rent rule; we remain focused on our larger, near-term exploration, and Brian will provide more details shortly. And we're pleased with the traction we've had in Atlanta, Nashville, and Tampa.

Theodore J. Klinck: As demonstrated over the past 90 days, having ample liquidity and access to multiple sources of capital throughout the cycle is an important differentiator for us.

Theodore J. Klinck: We made meaningful progress in all of these strategic priorities during 2023.

Theodore J. Klinck: We sold over $100 million of noncore properties, including land and made solid progress on our development pipeline with the completion of 28 27, Peachtree granted park, six and Glen Lake III.

Theodore J. Klinck: We expect these developments will provide meaningful growth in future years as they stabilize.

Theodore J. Klinck: Further we completed significant hardwood ties in projects on existing buildings in Nashville and Raleigh.

Theodore J. Klinck: Where we're already generating higher rental rates and increased leasing activity.

Theodore J. Klinck: We also made progress solidifying our future rent roll.

Theodore J. Klinck: We remain focused on our larger near term explorations.

Theodore J. Klinck: And Brian will provide more detail shortly.

Theodore J. Klinck: And we're pleased with the traction we've had in Atlanta, Nashville and Tampa.

Theodore J. Klinck: Given the known move-outs that we've discussed for some time, occupancy is likely to dip in late 2024 and early 2025, but we're encouraged by the activity we've seen throughout the portfolio, which has already translated into significant lease signings since the start of 2024. It's early, and while we don't expect a lot of transaction activity in the near term, we are setting the stage for future investments through exploratory discussions with owners and lenders of attractive properties in our market. This is similar to the playbook we deployed in the years following the GFC.

Theodore J. Klinck: Given the known move outs that we've discussed for some time occupancy is likely to dip in late 2024, and early 2025, but we're encouraged by the activity we've seen throughout the portfolio.

Theodore J. Klinck: Which has already translated into significant lease signings since the start of 2024.

Theodore J. Klinck: It's early and while we don't expect a lot of transaction activity in the near term we are setting the stage for future investments to exploratory discussions with owners and lenders are attractive properties in our markets.

Theodore J. Klinck: This is similar to the playbook, we deployed in the years following the GSC.

Theodore J. Klinck: We further strengthened our balance sheet by raising nearly $600 million of debt capital during 2023.

Theodore J. Klinck: We further strengthened our balance sheet by raising nearly $600 million of debt capital during 2023. Plus, just a few weeks ago, we extended the term of our $750 million credit facility into 2029, with no change to the size or the borrowing spread.

Theodore J. Klinck: Plus just a few weeks ago, we extended the term of our $750 million credit facility into 2029 with no change to the size where the borrowing spread.

Theodore J. Klinck: We now have over $900 million of current liquidity and no consolidated debt maturities until May 2022. We are confident in the long-term outlook for our markets and BBDs based on the limited new supply expected to be added over the next few years. The current supply pipeline in our markets is half of what it was just a few years ago, with most of these developments projected to deliver over the next four quarters. By this time next year, minimal new product is expected to be under construction.

Theodore J. Klinck: We now have over $900 million of current liquidity.

Theodore J. Klinck: No consolidated debt maturities until May 2026.

Theodore J. Klinck: We are confident.

Theodore J. Klinck: And the long term outlook for our markets <unk> based on the limited new supply expected to be added over the next few years.

The currency supply pipeline in our markets is half of what it was just a few years ago with most of these developments projected to deliver over the next four quarters.

Theodore J. Klinck: By this time next year minimal new product is expected to be under construction.

Theodore J. Klinck: This tightening supply picture further adds to our confidence as we focus on leasing up high-quality blocks that are or will become available in our buildings. They are well located in a high-quality portfolio, reputation as a best-in-class operator, and strong financial sponsorship positions us to continue to gain market share. Turning to our results, we delivered FFO of $0.99 per share in the fourth quarter, with full year 2023 at $3.83 per share. Both the quarter and full year results included unusual items that netted out to eight cents of higher FFO.

Theodore J. Klinck: This tightening supply picture further adds to our confidence as we focus on leasing up high quality blocks that are or will become available in our buildings.

Theodore J. Klinck: Our well located and high quality portfolio.

Theodore J. Klinck: Mutation as a best in class, operator, and strong financial sponsorship.

Theodore J. Klinck: Positions us to continue to gain market share.

Theodore J. Klinck: Turning to our results we delivered <unk> 99 per share in the fourth quarter with full year 2023 to $3 83 per share.

Theodore J. Klinck: Both the quarter and full year results included unusual items, the net out to <unk> <unk> of higher <unk>.

Theodore J. Klinck: Excluding these items, our core 2023 FFO was $3.75 per share, a penny above the midpoint of our initial outlook. We are pleased with these financial results, given asset sales and the unanticipated rise in interest rates during the year, neither of which were factored into our initial outlook. We expect to be a net seller again in 2024 with 75 to 200 million of non-core dispositions. Similar to 2023, the volume and timing of dispositions will depend on how conditions in the investment sales market play out. We do have about 75 million properties under contract and expect those sales to close in the first half of the year. While we're actively building the foundation for future investment opportunities, we don't have any acquisitions included in our 2024 outlook. Our initial 2024 FFO outlook is $3.46 to $3.64 per share, and same property cash NOI growth is projected to be positive 1% at the mid-period. In addition, we have backfilled a significant amount of larger known move-outs that impacted 2023 NOI and occupancy. And while these backfills won't meaningfully contribute to 2024, they will drive NOI in future years.

Theodore J. Klinck: Excluding these items our core 2023, <unk> was $3 75 per share.

Theodore J. Klinck: Any above the midpoint of our initial outlook.

Theodore J. Klinck: We are pleased with these financial results given asset sales and the unanticipated rise in interest rates during the year.

Theodore J. Klinck: Neither of which were factored into our initial outlook.

Theodore J. Klinck: We expect to be a net seller again in 2024.

Theodore J. Klinck: With $75 million to $200 million of noncore dispositions.

Similar to 2023, the volume and timing of dispositions will depend on how conditions in the investment sales market play out.

Theodore J. Klinck: We do have about $75 million of properties under contract and expect those sales to close in the first half of the year.

Theodore J. Klinck: While we are actively building the foundation for future investment opportunities. We don't have any acquisitions included in our 2020 for outlook.

Theodore J. Klinck: Our initial 2024 <unk> outlook is $3 46 to.

Theodore J. Klinck: The $3 64 per share and same property cash NOI growth is projected to be positive 1% at the midpoint.

Theodore J. Klinck: In addition, we have backfill the significant amount of larger known move outs that impacted 2023, NOI and occupancy.

Theodore J. Klinck: And while these backfill won't meaningfully contribute to 2024, they will drive the NOI in future years.

Theodore J. Klinck: We're also seeing good activity on backfilling some of the larger known move-outs later in 2024 and early 2025. While there obviously continue to be headwinds in the office sector. We're optimistic about the future. First, we have significant organic growth potential within our current operating portfolio with high-quality pockets of vacancy where we're seeing solid interest from investors. Second, our 518 million development pipeline will provide meaningful upside as it delivers and stabilizes over the next few years. Third, our balance sheet is in excellent shape, with ample liquidity and no need to raise capital for the next couple of years. And finally, our cash flows remain strong, even as we absorb headwinds from higher interest rates and invest high-witizing capital to generate higher returns on our existing portfolio. To wrap up,

Theodore J. Klinck: We're also seeing good activity on back filling some of the larger known move outs later in 2024 and early 2025.

Theodore J. Klinck: While there is obviously.

Theodore J. Klinck: Continues to be headwinds in the office sector, where.

Theodore J. Klinck: We are optimistic about the future.

Theodore J. Klinck: First we have significant organic growth potential within our current operating portfolio with high quality pockets of vacancy where we're seeing solid interest from prospects.

Theodore J. Klinck: Second our $518 million development pipeline will provide meaningful upside as the deliveries and stabilizes in the next few years.

Theodore J. Klinck: Third our balance sheet is in excellent shape with ample liquidity and no need to raise capital for the next couple of years.

Theodore J. Klinck: And finally, our cash flows remained strong even as we absorb headwinds from higher interest rates and investing high <unk> capital to generate higher returns on our existing portfolio.

Speaker Change: To wrap up.

Theodore J. Klinck: We're not only optimistic because of our markets and our portfolio but also because of our engaged, hardworking, and talented teammates who drive our success day after day. I would like to thank the entire Highwoods team for their commitment and tireless dedication; it is their effort that has positioned us for success for many years to come. Brian.

Speaker Change: We're not only optimistic because of our markets in our portfolio, but also because of our engaged hard working and talented teammates who drive our success day after day.

Speaker Change: I would like to thank the entire high Wood's team for their commitment and tireless dedication.

Is there effort that has positioned us for success for many years to come.

Speaker Change: Brian.

Brian M. Leary: Thanks, Ted, and good morning, everyone. I'd like to briefly hit our fourth quarter performance, macro trends, and then drill down on our markets, where we are off to a strong start for 2024 and where we are making progress towards backfilling our upcoming vacancy. In Q4 of 2023, our leasing team signed 698,000 square feet, with an average lease term of 6.6 years. Atlanta, Nashville, and Raleigh led the way with two-thirds of the quarter's volume.

Brian M. Leary: Thanks, Tad and good morning, everyone.

Brian M. Leary: I'd like to briefly hit our fourth quarter performance macro trends and then drill down on our markets, where we're off to a strong start for 2024.

Speaker Change: We are making progress towards back filling our upcoming vacancies.

Speaker Change: In Q4 of 2023, our leasing team signed 698000 square feet.

Speaker Change: With an average lease term of six six years.

Speaker Change: Atlanta, Nashville, and Raleigh led the way with two thirds of the quarter's volume Charlotte and Orlando had the highest occupancies at 95, 6% and 93, 5% respectively and.

Brian M. Leary: Charlotte and Orlando had the highest occupancies, at 95.6% and 93.5%, respectively. In addition, we signed a 105,000-square-foot first-generation lease at 23 Springs. RJV Development in Uptown Dallas. While many of our leasing metrics reflect the downward pressure of the current market, we were encouraged by our portfolio's occupancy outperformance in comparison to our BBDs by over 640 basis points and with the fourth quarter's average rent bump at 2.7 percent. We believe we have meaningful rent growth embedded in the quarter's results. The quality of our portfolio, our sponsorship, and the commute-worthy, lifestyle office experience we provide our customers gives us a clear edge in today's leasing environment. We're off to a strong start to 2024, having already signed over 500,000 square feet of second-generation leases, including 150,000 square feet of new leases and 52,000 square feet of expansions since January 1.

Speaker Change: In addition, we signed a 105000 square foot first generation lease at 'twenty three springs, our JV development in Uptown Dallas.

Speaker Change: While many of our leasing metrics reflect the downward pressure of the current market. We are encouraged by our portfolio's occupancy outperformance in comparison to <unk> by over 640 basis points and with the fourth quarter's average rent bumps at two 7%.

Speaker Change: We believe we have meaningful rent growth embedded in the quarter's results.

Speaker Change: The quality of our portfolio, our sponsorship and the commute worthy lifestyle office experience, we provide our customers gives us a clear edge in today's leasing environment.

Speaker Change: We're off to a strong start to 2024, having already signed over 500000 square feet of second generation leases, including 150000 square feet of new leases and 52000 square feet of expansions since January one.

Speaker Change: We continue to see return to work programs and mandates raise the tide on physical occupancy with the recognition that Fridays will be the lightest days in the office just as they were before the pandemic.

Brian M. Leary: We continue to see return-to-work programs and mandates raise the tides on physical occupancy, with the recognition that Fridays will be the lightest days in the autumn, just as they were before the pandemic. This also goes with the fact that our customers are telling us one-on-one and via their leasing activities that they value physical work, where their best and brightest can collaborate and solve problems, where talent can be onboarded and mentored, and where a company's culture can thrive. This flight to quality is a flight of quality.

Speaker Change: This also goes with the fact that our customers are telling us a one on one and via their leasing activity.

That they value the physical workplace are.

Speaker Change: Or are their best and brightest can collaborate and solve problems for our talent can be on boarded mentored.

Speaker Change: And where our company's culture and thrive.

Speaker Change: This flight to quality as a flight of quality.

Brian M. Leary: Quality companies with quality jobs, not easily exported to the couch today or to Artificial Intelligence tomorrow. From a market perspective, let's start in Atlanta, where we had the most leasing activity in the fourth quarter with 172,000 square feet, while the overall market saw another quarter of negative absorption. Cushman and Wakefield noted Buckhead broke from this trend of 240,000 square feet of positive absorption.

Speaker Change: Quality companies with quality jobs, not easily exported to the couch today.

Speaker Change: Or the artificial intelligence tomorrow.

Speaker Change: From a market perspective, let's start in Atlanta, where we had the most leasing activity in the fourth quarter with 172000 square feet signed.

Speaker Change: While the overall market saw another quarter of negative absorption Cushman and Wakefield noted buckhead broke from this trend.

240000 square feet of positive absorption.

Brian M. Leary: With no new development underway, in our four-building, two-million-square-foot Buckhead collection of lifestyle office buildings being the beneficiaries of our upcoming hybridizing project there, the team has backfilled 50,000 square feet and has more than 350,000 square feet of active prospects for the remainder of Novellis' Q3 2024 expiration. Staying in Atlanta, the Georgia Department of Revenue, as expected, will downsize, and we are successfully relocating them within the portfolio in 110,000 square feet at the beginning of 2025 to Music City, where we own 5.1 million square feet and Nashville's four BBDs. Our team signed 148,000 square feet in the quarter. Over the same period, Kurshman noted that Nashville posted 170,000 square feet of positive absorption, one of five markets in the nation to post greater than 150,000 square feet of positive absorption for the quarter. Last year, we hybridized roughly 1 million square feet in our Brentwood and Franklin BBDs, where we signed more than half of Nashville's deals for the quarter and where these commute-worthy workplaces are attracting customers. This supports our thesis that, at all things being equal, an exceptional experience.

Speaker Change: With no new development underway and our four building 2 million square foot Buckhead collection of lifestyle office buildings have been the beneficiaries of our upcoming <unk> project. There. The team is backfield 50000 square feet and has more than 350000 square feet of active prospects for the remainder of Novellus is Q3.

Speaker Change: 2020 for exploration.

Speaker Change: Staying in Atlanta, the Georgia Department of revenue as expected will downsize and we are successfully relocating them within the portfolio and 110000 square feet at the beginning of 2025.

Speaker Change: Music City, where we own 5.1 million square feet in Nashville for Dvds, Our team signed 148000 square feet in the quarter.

Speaker Change: Over the same period Cushman noted at Nashville posted 170000 square feet of positive absorption when a five markets in the nation to post greater than 150000 square feet of absorption for the quarter.

Last year, we hybridize, roughly 1 million square feet, and our Brentwood and Franklin Dvds, where we signed more than half of Nashville's deals for the quarter and where these commute worthy workplaces are attracting customers.

Speaker Change: This supports our thesis that.

Speaker Change: That all things being equal and.

Speaker Change: An exceptional experience.

Brian M. Leary: Trumpster Trophy Tower and the Lifestyle Office Building are more about the lifestyle than the building. You may recall that we shared an update last quarter on the five-story, 264,000-square-foot Cool Springs Five Building, formerly occupied by Tiviti, and the substantial backfill of that space. We have modified the lease signed in the third quarter of 2022 from 223,000 square feet to 110,000 square feet, under the modified terms of the lease. 55,000 square feet will commence in the fourth quarter of 2024 and the remaining 55,000 square feet in the fourth quarter of 2025. Free rent periods have been eliminated.

Speaker Change: Trumps the trophy tower.

Speaker Change: And that our lifestyle office building is more about the lifestyle than the building.

Speaker Change: You may recall that we shared an update last quarter on the five story 264000 square foot Cool Springs five building.

Speaker Change: Formerly occupied by activity and a substantial backfill of that space.

Speaker Change: We have modified the lease signed in the third quarter of 2022 from 223000 square feet to 110000 square feet.

Speaker Change: Under the modified terms of the lease 50.

Speaker Change: 55000 square feet will commence in the fourth quarter of 2024, and the remaining 55000 square feet in the fourth quarter of 2025.

Speaker Change: Free rent periods have been eliminated.

Brian M. Leary: Highwood's tenant improvement commitment has been reduced, and the per square foot rental rate has been increased. With the aforementioned tithing of these assets, we have a significant interest in the property and our other adjacent cool springs. In downtown Nashville, we will begin the hybridizing of our 520,000-square-foot Pinnacle Tower later this year, in anticipation of Bass, Berry, and Sims' known move-out in January of 2025. Located in the heart of Nashville, this well-located asset is next door to the newly opened Four Seasons Hotel and Residence and is directly connected to the only pedestrian bridge spanning the Cumberland River, joining the new $2 billion enclosed NFL stadium starting We already have several multi-floor prospects a year in advance of Bassberry's expiration.

<unk> tenant improvement commitment has been reduced and the per square foot rental rate has been increased.

Speaker Change: With the a for mentioned highway ties into these assets, we have significant interest in the property and our other adjacent cool springs assets.

Speaker Change: And downtown Nashville, We will began to Hybridizing of our 520000 square foot Pinnacle tower later this year in anticipation of bass Berry and Sam's known move out in January of 2025.

Speaker Change: And the heart of Nashville. This well located asset is next door to the newly opened four seasons hotel in residences and is directly connected to the only pedestrian bridge spanning the Cumberland River, joining the new $2 billion Inclosed NFL Stadium, starting construction later this year.

Speaker Change: We already have several multi for prospects a year in advance of <unk> exploration.

Brian M. Leary: A quick update on our non-core Pittsburgh assets, where we expect a 317,000 square foot customer at EQT Plaza to downsize in the fourth quarter of 2024. We've backfilled the full floor and have prospects for additional space. I'd like to finish in the Sunshine State, where Korchman noted Tampa ended 2023 number three in the nation for leasing as a percentage of inventory. Our Tampa team has been busy at Tampa Bay Park, our approximately 1 million square foot collection of assets in Westshore by addressing prior move-outs.

Speaker Change: A quick update on our noncore Pittsburgh assets, where we expect a 317000 square foot customer at EQT Plaza to downsize in the fourth quarter of 2024.

Speaker Change: We backfill the full floor and have prospects for additional space.

Speaker Change: I'd like to finish in the Sunshine State.

Speaker Change: Cushman noted Tampa ended 2023 number three in the nation for leasing as a percentage of inventory.

Speaker Change: Our Tampa team has been busy at Tampa Bay Park.

Speaker Change: Our approximately 1 million square foot collection of assets in west shore by addressing prior move outs 120000 square feet in aggregate across the park with 95000 square feet of backfill leasing that has yet to commence.

Brian M. Leary: 120,000 square feet in aggregate across the park with 95,000 square feet of backfill leasing that has yet to commence. In conclusion, we expect 2024 to bring many of the same challenges we faced over the past several years. We are encouraged by the level of activity we are seeing throughout our BBDs. Competitive development pipelines are at record lows, and We Believe, our resilient portfolio. Ongoing Highway Ties, you know. A strong balance sheet and sizable land bank will enable us to capitalize on opportunities in our markets as they arise. Brendan?

Speaker Change: In conclusion.

Speaker Change: While we expect 2024 to bring many of the same challenges we faced over the past several years. We are encouraged by the level of activity, we are seeing throughout our Dvds.

Speaker Change: Competitive development pipelines are at record lows and we believe our resilient portfolio.

Speaker Change: Ongoing <unk> efforts.

Speaker Change: <unk> balance sheet and sizable land bank will enable us to capitalize on opportunities in our markets as they arise Brendan.

Brendan Maiorana: Thanks, Brian. In the fourth quarter, we delivered net income of $38 million, or $0.36 per share, and FFO of $106.7 million, or $0.99 per share. As Ted mentioned, there were unusual items in the quarter that amounted to $0.08 per share. However, none of these items were included in our updated FFO outlook provided in October.

Brendan Maiorana: Thanks, Brian in the fourth quarter, we delivered net income of $38 million or <unk> 36 per share and <unk> of $106 $7 million for <unk> 99 per share as Ted mentioned, there were unusual items in the quarter that netted to <unk> <unk> per share none of these items were <unk>.

Brendan Maiorana: <unk> and our updated <unk> outlook provided in October.

Brendan Maiorana: Excluding these items, FFO per share was $0.91 in the fourth quarter and $3.75 for the year, a penny above our initial 2023 FFO outlook provided last February. We are pleased with these full-year results, as $0.04 of upside, mostly from higher NOI, overcame the $0.03 we lost from the combination of higher interest rates, asset sales, and the earlier-than-expected repayment of our preferred investment in M&L. Just a few details on this unusual item.

Brendan Maiorana: Excluding these items <unk> per share was <unk> 91 in the fourth quarter and $3 75 for the year a penny above our initial 2023 <unk> outlook provided last February.

Brendan Maiorana: We are pleased with these full year results at <unk> <unk> of upside mostly from higher NOI overcame a three we lost from the combination of higher interest rates asset sales and the earlier than expected repayment of our preferred investment and M&A.

Brendan Maiorana: Just a few details on the unusual items the pre development costs written off in the fourth quarter were $3 $6 million.

Brendan Maiorana: The pre-development costs written off in the fourth quarter were $3.6 million. 2.6 million of this shows up in GNA, while a million dollars shows up in the form of reduced income from unconsolidated affiliates, as it was attributable to a JV. The remaining unusual items, land sale gains, debt extinguishment costs, and the write-off of straight-line rents due to moving a customer to cash-based accounting, are reflected, as you would expect, on the income statement. During 2023, we further strengthened our balance sheet by pushing out our maturity ladder, which puts us in excellent shape for the next several years. During the fourth quarter, we raised $350 million in 10-year bonds with strong support from a broad group of fixed income investors.

Brendan Maiorana: $2 6 million of this shows up in G&A, while a $1 million shows up in the form of reduced income from unconsolidated affiliates as it was attributable to a JV the.

Brendan Maiorana: The remaining unusual items land sale gains debt extinguishment costs and the write off of straight line rents due to moving a customer to cash basis accounting are reflected as you would expect on the income statement.

Brendan Maiorana: During 2023, we further strengthened our balance sheet by pushing out our maturity ladder, which puts us in excellent shape for the next several years during the fourth quarter, we raised $350 million of 10 year bonds with strong support from a broad group of fixed income investors. We also obtained a 45 million.

Brendan Maiorana: We also obtained a $45 million, 5-year secured loan at Midtown West, a consolidated JV property in Tampa where we own an 80% interest. We also obtained a $200 million secured loan in March. In total, we raised almost $600 million of debt capital during the year.

Brendan Maiorana: Five year secured loan at Midtown West a consolidated JV property in Tampa, where we own an 80% interest.

Brendan Maiorana: We also obtained a $200 million secured loan in March in total we raised almost $600 million of debt capital during the year.

Brendan Maiorana: After year-end, we recast our $750 million credit facility with no change to our borrowing capacity or credit spread. In the past 12 months, we've accessed the bond market, the mortgage market, and the bank market for over $1.3 billion of total capital. We now have no consolidated debt maturities until May 2026 and over $900 million of available liquidity, having less than $250 million of capital left to complete our development pipeline. Our strong balance sheet with ample liquidity, combined with our high-quality portfolio in the BBDs of high-growth Sunbelt markets, is a large reason why Moody's affirmed our BAA2 credit rating with a stable outlook just last week.

Brendan Maiorana: After year end, we recast our $750 million credit facility with no change to our borrowing capacity or credit spread and.

Brendan Maiorana: In the past 12 months, we've accessed the bond market the mortgage market and the bank market for over $1 3 billion of total capital we.

Brendan Maiorana: We now have no consolidated debt maturities until May 2026, and over $900 million of available liquidity, having less than $250 million of capital left to complete our development pipeline.

Brendan Maiorana: Our strong balance sheet with ample liquidity combined with our high quality portfolio in the Bvd is of high growth Sunbelt markets is a large reason why Moody's affirmed our b W. Two credit rating with a stable outlook just last week.

Brendan Maiorana: I'd like to spend some time highlighting our cash flow trajectory. In 2023, we once again had healthy cash flows, demonstrating the resiliency of our portfolio and platform. Digging a little deeper, an even clearer picture emerges. First, as you know from prior calls, we had two sizable properties in 2023 that were vacant nearly the entire year. Cool Springs 5 and 2500 Century.

Speaker Change: I'd like to spend some time, highlighting our cash flow trajectory in.

Speaker Change: In 2023, we once again had healthy cash flows demonstrating the resiliency of our portfolio and platform.

Speaker Change: Digging a little deeper and even clearer picture emerges first as you know from prior calls we had two sizable properties in 2023 that were vacant nearly the entire year Cool Springs, five and 2500 century Center. These have now been substantially re leased with additional solid interest in the balance of the space.

Brendan Maiorana: These have now been substantially released with additional solid interest in the balance of the space, but they generated negative NOI during 2023. Because our practice has long been not to take in-service properties available for lease out of our operating or same-store portfolio, regardless of occupancy, these two empty buildings negatively impacted FFO and cash flow.

Speaker Change: But they generated negative NOI during 2023.

Speaker Change: Because our practice has long been not to take in service properties available for lease out of our operating or same store portfolio regardless of occupancy.

Speaker Change: These two empty buildings negatively impacted <unk> and cash flow.

Brendan Maiorana: Second, we had above average TI spent during 2023 as we funded committed capital on the high volume of new leases signed in 2022. Third, we invested heavily in renovation and repositioning capital to high-wooden existing properties during the year. Even with these three factors, we still generated healthy cash flows that provided positive dividend coverage.

Speaker Change: Second we had above average ti spend during 2023 as we funded committed capital on the high volume of new leases signed in 2022.

Speaker Change: Third we invested heavily in renovation and repositioning capital to highwood ties existing properties during the year.

Speaker Change: Even with these three factors, we still generated healthy cash flows that provided positive dividend coverage. We believe the resiliency of our cash flows should give our shareholders confidence in our long term outlook.

Brendan Maiorana: We believe the resiliency of our cash flows should give our shareholders confidence in our long-term outlook. As Ted mentioned, our FFO outlook for 2024 is $3.46 to $3.64 per share. You'll also note that we are now providing our full-year outlook for average occupancy rather than a single-date year-end projection as we have done in prior years. We think average occupancy should provide better insight into our overall outlook for the year. Same property cash NOI growth is projected to be flat to up 2%.

Speaker Change: As Ted mentioned, our <unk> outlook for 2024 to $3 46 to $3 64 per share. You'll also note that we are now providing our full year outlook for average occupancy rather than a single date yearend projection as we have done in prior years, we think as.

Speaker Change: Occupancy should provide better insight into our overall outlook for the year.

Speaker Change: Same property cash NOI growth is projected to be flat to up 2%.

Brendan Maiorana: This includes the full headwinds of the Cool Springs, Century Center, and Tampa Bay Park vacancies we've detailed, as the backfill customers do not begin to take occupancy until later this year or early 2025, as well as the known pending vacancies at Two Alliance Center in Atlanta and EQT Plaza in Pittsburgh in the second half of the year. While 2024 per share FFO is projected to be down compared to the core results in 2023, The decline is primarily attributable to higher financing costs associated with our capital raising activities in the fourth quarter of 2023 and the modification of the lease and accounting treatment related to our backfill customer at Cool Springs Five in Nashville. These items have a combined diluted impact of approximately 15 cents per share, split roughly evenly between them.

Speaker Change: This includes the full headwinds of the Cool Springs century Center and Tampa Bay Park Vacancies, we've detailed as the backfill customers did not begin to take occupancy until later this year or early 2025.

Speaker Change: As well as the known pending vacancies at two Alliance center in Atlanta, and EQT Plaza in Pittsburgh in the second half of the year.

Speaker Change: While 2024 per share <unk> is projected to be down compared to the core results in 2023.

Speaker Change: The decline is primarily attributable to higher financing costs associated with our capital raising activities in the fourth quarter of 2023, and the modification of the lease and accounting treatment related to our backfill customer at cool Springs, five and Nashville.

Speaker Change: These items have a combined dilutive impact of approximately <unk> 15 per share split roughly evenly between the two.

Brendan Maiorana: We expect Cool Springs 5 to generate negative NOI in 2024. However, based on the modified lease we've discussed and the solid interest we're seeing from prospects, we believe Cool Springs 5 will be a significant driver of growth in future years. This is also the case in Tampa and Atlanta based on signed but not yet begun leases. In addition, we have meaningful future growth potential from our development pipeline. We delivered three properties in late 2023, 2827 Peachtree, Granite Park 6, and Glen Lake 3. On a combined basis, these properties are projected to be roughly neutral to 2024 FFO, as we will stop capitalizing on interest later this year. However, we have healthy prospect activity for these properties, which should provide growth for NOI, FFO, and cash flow in future years.

Speaker Change: We expect cool spring five will generate negative NOI in 2024, however, based on the modified lease we've discussed and the solid interest we're seeing from prospects. We believe cool springs, five will be a significant driver of growth in future years.

Speaker Change: This is also the case in Tampa and Atlanta based on signed but not yet commenced leases.

Speaker Change: In addition, we have meaningful future growth potential from our development pipeline.

Speaker Change: We delivered three properties in late 2023, 2008, 2007, Peachtree granite park sticks and Glenn like three.

Speaker Change: On a combined basis. These properties are projected to be roughly neutral to 2024 <unk> as we will stop capitalizing interest later this year. However.

Speaker Change: However, we had healthy prospect activity for these properties, which should provide growth to NOI.

Speaker Change: <unk> and cash flow in future years.

Brendan Maiorana: In summary, our balance sheet is in excellent shape, our high-quality Sunbelt portfolio is located in the BBDs where talent wants to be, and our team is cycle-tested and optimistic about future value creation. Operator, we are now ready for questions. Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. That's star number one on your telephone; draw your question star followed by two, and please also remember to unmute your microphone.

Speaker Change: In summary, our balance sheet is in excellent shape, our high quality Sunbelt portfolio is located in the Bvd's, where talent wants to be and our team is cycle tested and optimistic about future value creation.

Speaker Change: Operator, we are now ready for questions.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Thats Star one on your <unk>.

Speaker Change: Telephone keypad.

Speaker Change: To withdraw your question Star followed by two and please also remember too Unmeet your microphone when is your turn to speak.

Speaker Change: We do have our first question rich that comes from Blaine Heck from Wells Fargo. Your line is now open.

Blaine Heck: We do have our first question registered, and it comes from Blaine Heck from Wells Fargo. Blaine, your line. Okay, great. Good morning. So it sounds like leasing has picked up. But some context would be great.

Blaine Heck: Okay, great. Good morning, so it sounds like leasing has picked up but some context would be great. So I guess can you talk about the overall leasing pipeline that you guys are working on right now how the size of that pipeline or activity levels compared with compares with what you saw last year.

Theodore J. Klinck: So I guess, can you talk about the overall leasing pipeline that you guys are working on right now? How the size of that pipeline or activity level compares with what you saw last year? Maybe what the mix is between new and renewal leases and whether the composition has changed at all from a tenant size or industry perspective? Good morning, Blaine. Sure, it's Ted.

Blaine Heck: Maybe what the mix is between new and renewal leases and whether the composition has changed at all from a tenant size or industry perspective.

Blaine Heck: Yeah.

Blaine Heck: Good morning, Blaine shirts, Ted I'll start and maybe Brian can add to it look obviously, we were pleased with our leasing in the fourth quarter.

Theodore J. Klinck: I'll start, and maybe Brian can add to it. Look, obviously, we were pleased with our leasing in the fourth quarter, just shy of 700,000 feet. We did 100 deals, which is sort of right on par with our historical average. Forty-four of those were new leases.

Speaker Change: Just shy of 700000 feet, we did 100 deals which are sort of right on par with our historical average 44 of those were new leases.

Theodore J. Klinck: We also had seven new-to-market customers, primarily companies that were opening up small regional offices, 2,000 or 3,000 square feet, so no big inbound relocations. But look, it's been small, the same trend we've seen the last few years in smaller companies, but there are a couple of trends we're seeing. And the activity is pretty evenly divided among our markets, but a couple of the trends we're seeing is that there's really been a gap that's widening between the haves and the have-nots for office owners. We're hearing from brokers that some companies won't even tour buildings, buildings that have debt and certainly near-term maturities, sort of a binary qualifier for some buildings.

Speaker Change: Also had seven new to market customers, primarily companies that were open up small regional offices.

Speaker Change: Two or 3000 square feet, so no big inbound relocations, but look its been small same trend we've seen the last few years and smaller companies, but a couple of trends we're seeing.

Speaker Change: And the activity is pretty evenly divided among our markets, but a couple of the trends. We're seeing is theres really been a gap that's widening between the haves and have nots for office owners.

Speaker Change: We're hearing from brokers that some companies won't even tour buildings.

Speaker Change: Buildings without debt and certainly near term maturities sort of a binary qualifier for some buildings and I think the brokers as I think I've talked about on prior calls they are doing a really good job. This cycle understanding the capital stack for office buildings, So I think.

Theodore J. Klinck: And I think the brokers, as I think I've talked about on prior calls, are doing a really good job this cycle of understanding the capital stack for office buildings. So I think just given the amount of debt maturities that are coming up, this really plays to our strength, and we're out talking to brokers. We've got a highly unencumbered portfolio. We don't have a lot of single asset secured loans, so we're taking advantage of the situation. And I think we're capturing, we're trying to capture more than our fair share always, but I think we've been able to do that in the last, certainly the last couple quarters. And as you know, as we stated in our prepared remarks, we're off to a great start this quarter.

Speaker Change: Just given the amount of debt maturities that are coming up this really plays to our strength and we're out talking to brokers. We've got a highly unencumbered portfolio. We don't have a lot of single asset secured loans. So we're taking advantage of the situation and I think we're capturing we're trying to capture more than our fair share always but I think we've been able.

Speaker Change: To do that in the last certainly last couple of quarters and as you know as we stated in our <unk>.

Speaker Change: Prepared remarks, we're off to a great start.

Speaker Change: This quarter. So another trend look we are seeing larger deals are starting to come back while it's been the last year or so smaller deals the 25% to <unk>, we're seeing a lot more of those.

Theodore J. Klinck: So another trend, look, we are seeing larger deals starting to come back. While it's been the last year or so, smaller deals, the 25 to 50s, we're seeing a lot more of those. Another trend probably is that smaller companies are the ones that are growing, and the larger companies are the ones that are shrinking, so we're starting to see more of that. We had, I think, 13 expansions, as I mentioned earlier.

Trend another trend probably of the smaller companies are the ones that are growing and the larger companies are the ones that are shrinking so we're starting to see.

Speaker Change: More of that than we.

Speaker Change: We had I think 13 expansions as I mentioned mentioned earlier.

Theodore J. Klinck: Companies are also willing to do longer terms. They don't want to come out of pocket for TI, so they'll give terms to get additional TI. You know, I guess the final trend we always talk about, the flight to quality, certainly that's real. It's quality buildings, quality amenities, and certainly quality ownership. So I hope that answered your question. Yeah, that's a very helpful color there, Ted.

Speaker Change: Companies are also willing to do longer terms, they don't want to come out of pocket for Ti So they'll give term to get additional ti.

Speaker Change: I guess a final trend, we always talk about the flight to quality certainly that's real quality buildings quality amenities and certainly the quality ownership. So I hope that answered your question.

Speaker Change: Yes, that's very helpful color there Ted I appreciate that so just switching gears for my second question can you just talk about your appetite for investment at this point are you guys actively pursuing any opportunities on the acquisition side or would you say you are currently more focused on the development lease up.

Theodore J. Klinck: I appreciate that. So just switching gears for my second question. Can you just talk about your appetite for investment at this point? Are you guys actively pursuing any opportunities on the acquisition side? Or would you say you're currently, you know, more focused on the development lease-up and leasing and the operating portfolio, making sure some of the backfill activity gets done? As you know, Blaine, we look at everything that's out there.

Speaker Change: Leasing in the operating portfolio, making sure some of that backfill activity gets done.

Speaker Change: Yes.

Speaker Change: We're always we look at everything that's out there.

Theodore J. Klinck: We answer the phone when we get inbound calls from folks as well. We also stay close to lenders, so as we said, we're actively watching the market, trying to see where the data points are for trades, and I'll talk about one in a second. We have a lot on our radar, on our wish list, that we're just monitoring right now. I'd say early discussions, but there's nothing imminent without a doubt, but at the same time, look, we're laser focused on filling our backfills. As we all know, we've got several coming up late starting in the fourth quarter this year, and leaking over into the first quarter next year, so our leasing teams are highly focused on that. Again, we like the inbound activity we're seeing on these backfills early, so we're not just laser focused on one.

Theodore J. Klinck: We certainly we answer the phone when we get inbound calls from folks as well, we also stay close to lenders.

Theodore J. Klinck: As we said were.

Theodore J. Klinck: Actively watching the market trying to see where the data points are for trades and I'll talk about one in a second but.

Theodore J. Klinck: So we're not there's nothing that we have a lot on our radar on our wish list that we're just monitoring right now I'd say early discussions, but there is nothing nothing eminent without a doubt but at the same time won't look we're laser focused on filling our our backfill swim as we all know we've got several coming up late start in the fourth quarter. This year.

Theodore J. Klinck: And over in the first quarter next year. So our leasing teams are highly focused on that again, we like the inbound activity. We're seeing on these backfill early so so sort of were not just laser focus on one we're sort of doing both and I will talk about one trade. That's happened as we look at the comps when Theres a couple of others. We think are common but.

Theodore J. Klinck: We're sort of doing both, and I will talk about one trade that happened as we look at the comps, and there's a couple others we think are coming, but there's a high-quality building that traded here in Raleigh just a month or two ago. It was a high-quality asset. It actually sold for a higher price than what it did in 2018.

Theodore J. Klinck: There is a high quality building traded.

Theodore J. Klinck: Here in Raleigh, just I don't know a month or two ago. It closed as a high quality asset actually sold for a higher price than what it did in 2018.

Theodore J. Klinck: It did have some better-than-market seller financing, but it was basically a six-and-a-half cap rate. If you adjust for the better-than-market seller financing, maybe it ticked up to just shy of a seven, something like that, but from our understanding, there are 100 CA signed, double-digit bids, and so a pretty good market for that type of asset, and again, we're watching a few others

Theodore J. Klinck: It did have some sellers better than market seller financing, but it's basically a six five cap rate if you adjust for the.

Theodore J. Klinck: Better than market seller financing, maybe it ticked up to just shy of seven something like that but from our understanding is there's 100 CA signed double digit bids and so we're pretty pretty good market for that type of asset and again, we're watching a few others.

Speaker Change: Great and just to follow up on that I guess.

Theodore J. Klinck: And just to follow up on that, I guess, you know, in this interest rate environment and given where all the fundamentals are today, what pricing metrics would get you guys excited about an opportunity? In other words, where you're targeted going in the cap rate threshold or IRR threshold or even, you know, price per square foot threshold? Yeah, look, obviously, discount to replacement cost is one bar for us in this environment. Again, I mentioned the playbook we used coming out of the GFC; we bought a lot of partially leased assets with a lot of upside. So cap rates are, you know, pretty irrelevant.

Speaker Change: In this interest rate environment, and given where office fundamentals are today I guess, what pricing metrics would get you guys excited about an opportunity in other words.

Speaker Change: Youre targeted going in cap rate threshold, or IRR threshold or even price per square foot thresholds.

Speaker Change: Yeah look obviously discount to replacement cost is one bar for us in this environment again, it's I mentioned that the playbook, we used coming out of the GSE. We bought a lot of partially leased assets with a lot of upside so cap rates.

Speaker Change: Irrelevant for.

Theodore J. Klinck: For us, we looked at a stabilized cap rate, and we would love to take some leasing risk if we can get the asset at the right price and then lease it up ourselves. And so, obviously, we're looking at – we think we're going to be able to get some acquisitions at pretty attractive yields. And what those are, I guess we'll have to see.

Speaker Change: For us we looked at a stabilized cap rate and we would love to take some leasing risk. If we can get the asset at the right price and then lease it up ourselves and so obviously, we're looking at we think we're going to be able to get.

Speaker Change: Some acquisitions at a pretty attractive yields and what those are I guess, we'll have to we'll have to see but.

Theodore J. Klinck: But I think acquisitions are going to pencil better than development for the next couple of years. So again, we'll just have to see what the risk-adjusted return is. Great, thanks a lot.

Speaker Change: I think acquisitions are going to pencil better than development I think for the next couple of years. So again, we'll just have to see what the risk adjusted return is.

Speaker Change: Great. Thanks, a lot.

Blaine Heck: Thank you. Our next question comes from Michael Griffin from CTV. Michael, you may proceed with your question. Okay, thanks.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Michael Griffin from Citi. Michael You May proceed with your question.

Michael Griffin: Great. Thanks, maybe just sticking back on the leasing front are you noticing tenants are they quicker to make decisions about leasing space or the time still elongated and making decisions any color around that would be helpful.

Brian M. Leary: Maybe just sticking back on the leasing front. Are you noticing tenants, are they quicker to make decisions about leasing space? Are the times still elongated for making decisions? Any color around that would be helpful.

Brian M. Leary: Yeah, Michael. Unfortunately, it's still elongated. It's been slow in the decision-making process. I mean, deals we thought might close one quarter are getting pushed a quarter, sometimes two quarters. So decision-making is still taking time. I do think that we are seeing some of the larger users that have been kicking the can. They're now starting to make decisions. They understand what the return-to-work policies are of

Speaker Change: Yeah, Michael it's.

Speaker Change: Unfortunately, it's still elong.

Elongated.

Speaker Change: It's been slow on.

Speaker Change: On the decision, making I mean deals.

Speaker Change: Deals we thought my closed one quarter is getting pushed a quarter, sometimes two quarters. So decision, making still taken taken time I do think that we are seeing some of the larger users that have been kicking the can they are now starting to make decisions I understand what the return to work policies are of the companies. So while the decisions are going to be.

Brian M. Leary: So while the decisions are going to take longer to get done, they are going to make those decisions instead of delaying them for a year, year and a half, whatever. So more deals are going to get done over time, but it's still taking more time. Michael, this is Brian, just one little footnote to what Ted said is that, and we're guilty of this, a lot of tenants or customers in the market have gotten engaged maybe farther out from expiration than they might have in the past, so they actually have a little bit of free board to take longer, while at the same time, when you look at the kind of national portfolio or the portfolio in our submarkets, there's a natural role, and that's coming due, and that forces decisions.

Speaker Change: <unk> take longer to get done they are going to make those decisions instead of delaying them.

Speaker Change: For a year year and a half whatever so more deals are going to get done over time, but it's still taken taken more time.

Speaker Change: Michael I might add this is Brian just one little footnote to what Ted said is that and we're guilty of this a lot of tenants or customers in the market have gotten engage maybe farther out from exploration than they might have in the past. So they actually have a little bit of freeboard to take longer while at the same time. When you look at the kind of a national portfolio of the <unk>.

Speaker Change: Portfolio in our Submarkets, there's a natural role and that's coming due and that forces decisions and so we're starting to see that I think there was some kind of kick the can one year two year that definitely happened during the pandemic, but now as you start to get that.

Brian M. Leary: And so we're starting to see that. I think there was some kind of kick the can, one year, two years, that definitely happened during the pandemic, but now as you start to get that cross line of debt maturities and assets we're competing against and role, you are starting to see some folks have to. Thanks, that's helpful. This is Nick Joseph here with Michael.

Speaker Change: Cross lines of debt maturities and assets were competing against and roll you are starting to see some folks may have to make decisions.

Speaker Change: Thanks, that's helpful.

Speaker Change: Nick Joseph here with Michael.

Michael Griffin: Just on... Assets, provide an update on where those stand, you know, how that plays into the capital plan, for uh... kind of the timing around it. Yeah, Michael, it's Ted. Look, in Pittsburgh. As you all know, we announced in the third quarter of 22 that our intention was to exit Pittsburgh. We didn't put a timeline on it, and it's just as a reminder, we announced back in 2019 that we were going to get out of Memphis and Greensboro. You know, it ultimately took us about three years to get out of those markets. So, you know, our intention is still to exit Pittsburgh, but just given a very difficult capital market environment for office space, and then you layer on very big office, big office transactions, it's just, it's not an opportune time. So, we are focused on leasing up the vacancies, the upcoming vacancies, and just, you know, running the assets like we normally would. And Nick, this is Brendan.

Nick Joseph: The potential Pittsburgh asset sales can you provide an update on where those stand.

Nick Joseph: How that plays into the capital plan for 2024 then.

Speaker Change: Kind of the timing around that just given some of the lease explorations later this year.

Theodore J. Klinck: Yeah, Michael it's Ted.

Michael Griffin: On Pittsburgh as you all know we announced in the third quarter 'twenty two that our intention was to exit Pittsburgh.

Theodore J. Klinck: We didn't put a timeline on it.

Theodore J. Klinck: Just as a reminder, we announced back in 2019 that we're going to get out of Memphis and Greensboro.

It ultimately took us about three years to get out of those markets. So our intention is still to exit Pittsburgh, but just given the very difficult capital market environment for office and then you layer on very Big Office Big Office transactions. It's just it's not an opportune time. So we are focused on leasing up the vacancy.

Theodore J. Klinck: Upcoming vacancies and just.

Theodore J. Klinck: Running the assets like we normally would.

And Nick this is Brendan just in terms of the capital plan for the year, there really isn't anything that we don't need any of those proceeds I mean, we have over $900 million of existing liquidity, we will spend some money on the development pipeline, but even if we didn't sell anything during the year I think from a <unk>.

Theodore J. Klinck: Just, you know, in terms of the capital plan for the year, there really isn't anything that we don't need any of those proceeds for. And we have over $900 million of existing liquidity. We'll spend some money on the development pipeline. But even if we didn't sell anything during the year, I think from a sources and uses standpoint, we've got ample liquidity for several years. Thank you very much.

Theodore J. Klinck: Sources and uses standpoint, we've got ample liquidity for several years.

Speaker Change: Thank you very much.

Brendan Maiorana: Our next question comes from Rob Stevenson from Geneva. Brooke, your line is now open. Good morning, guys.

Speaker Change: Our next question comes from Rob Stevenson from Janney.

Robert Chapman Stevenson: Your line is now open.

Robert Chapman Stevenson: Hi, good morning, guys.

Robert Chapman Stevenson: Ted, give me your comments about brokers not touring assets with debt issues. Are these just turning into zombie buildings that can't fund TIs and are no longer competitive? Is there something else that's going on there? Look, I think some of those are.

Robert Chapman Stevenson: Given your comments about brokers not pouring assets with debt issues are these just turning into a zombie buildings that can't fund Ti is no longer competitive is there something else thats going on there or something.

Robert Chapman Stevenson: Well look I think some of those are exactly right and you've also got a.

Theodore J. Klinck: It's exactly right. And you've also got a, you know, a... Yeah, anybody that's got a loan coming up with a secured loan, they're having discussions with their lender right now, right? So it's the lender wants a pay down, the borrower may not be willing to do a pay down, so you've just got the tension in the room, I think, between a lot of lenders and borrowers. So right now, yeah, who's going to fund the TIs? Is the lender going to do it if they haven't worked out an extension with the borrower?

Robert Chapman Stevenson: Anybody who's got a loan coming up with a secured loan theyre, having discussions with their lender right now right. So it's the lender wants to pay down the borrower may not be willing to do a pay down so you've just got those the tension in the room I think between a lot of lenders and borrowers so right now yes.

Robert Chapman Stevenson: To fund the tiers of the lender going to do it if they haven't worked out or extension with the borrowers. So I think they're difficult conversations that are going on with a lot of loans that are better.

Theodore J. Klinck: So I think they're difficult conversations that are going on with a lot of loans that are near-term maturity. And have you guys seen lenders taking good quality assets back in your core markets, or is it just, you know, the sort of, you know, lower tier assets that we're seeing as the headlines, and they're just kicking the can down the road on the better quality assets? Yeah, I think that's generally it. Lower quality, typically, as in prior cycles, lower quality is what goes back first.

Robert Chapman Stevenson: Near term maturities.

Robert Chapman Stevenson: And have you guys seen lenders, taking good quality assets back.

Robert Chapman Stevenson: In your core markets or is it just.

Robert Chapman Stevenson: Sort of.

Robert Chapman Stevenson: Lower tier assets that we're seeing is the headlines and they're just kicking the can down the road on the better quality assets.

Robert Chapman Stevenson: Yeah.

Robert Chapman Stevenson: Yes, I think thats generally yet lower quality typically as the prior cycles lower quality is what goes back first so we're starting to see it but there have been a I'd say, maybe a handful of high quality assets that have in fact gone back to lenders over the past 12 to 15 months and I think theres going to be some more.

Theodore J. Klinck: So we're starting to see it, but there have been, I'd say, maybe a handful of high-quality assets that have, in fact, gone back to lenders over the past 12 to 15 months. I think there are gonna be some more. So it's just, again, you just have to be patient. But, you know, coming out of the GFC, we didn't start buying high-quality assets until 2012 and 2013, when the GFC started in 2008 or 2009. So it takes a few years just to cycle through for the quality of the assets we want. So we've got several on our radar, on what we call our wish list, but again, we have to be patient.

Robert Chapman Stevenson: So it was just again just got to be patient.

Robert Chapman Stevenson: Coming out of the GSA.

Robert Chapman Stevenson: We did not buy in high quality assets until 2012.

Robert Chapman Stevenson: 12, and 13 GSE started.

Robert Chapman Stevenson: Eight or nine so it takes a few years just to cycle through for the quality of the assets. We want so we've got several on our radar on our what we call our wish list, but again, it's just going to have to be patient.

Theodore J. Klinck: Okay, and then just to ask the leasing question in a different way, how rational are your markets today? Are you seeing, you know, other landlords overpaying for occupancy out there and driving costs up? Or are people remaining fairly reasonable at this point, given market conditions and length of lease, etc.? Yeah, look, I think this environment is similar to what the office market experiences during any economic downturn, right? It has become a tenant's market, so you don't know what each intention is and what the situation is with each building landlord.

Speaker Change: Okay, and then just to ask the leasing question a different way how rational or your markets today are you seeing.

Speaker Change: Other landlords overpaying for occupancy out there and driving cost up or people remaining fairly reasonable at this point given market conditions and length of lease et cetera.

Speaker Change: Yes.

Speaker Change: Yes look I think this environment is similar to what the.

Speaker Change: The office could experiences during any economic downturn right. It becomes a tenants market. So you've got not knowing what each intention is and what the situation is with each building landlord theres landlords are getting very aggressive.

Robert Chapman Stevenson: There are landlords that are getting very aggressive, you know, vacancies are increasing, you've got increased sublease space, you know, capital costs are increasing. So, look, there's, you know, I would argue there are some irrational deals going on, but we're highly competitive as well, you know, we're going to compete for all the leases, but it's just a tenant's market, and it Okay, and then Brendan, just to follow up on that, tenant improvements that you mentioned in your comments, up almost 20 million year over year, 23%, like 94 million and change. Given the amount of rollover and leasing that you guys are slated to do in 2024 and 2025, what are you guys budgeting there? Is it likely to remain elevated at these levels over the next year or two until you get the occupancy up? Yeah, Rob, that's a good question.

Vacancies, increasing yet increased sublease space.

Speaker Change: Capital costs are increasing so look there is you know I would argue there is some irrational deals going on but we're highly competitive as well.

Speaker Change: We're we're going to compete for all the all the leases, but it's just it's a tenants market.

Speaker Change: Environment that we saw we see every 10 or 15 years.

Speaker Change: Okay, and then Brandon just to follow up on that tenant improvements that you mentioned in your comments up almost $20 million year over year like 23% like $94 million in change given the amount of rollover in leasing.

Speaker Change: You guys are slated to do in 2425, what are you guys budgeting there is likely to remain elevated at these levels over the next year or two until you get the occupancy up.

Brandon: Yes, Rob that's a good question.

Brendan Maiorana: I, we think it's probably more likely to kind of migrate down during 2024. At least that's what we kind of have baked into the outlook. So I expect a lot of 23 was all of the leasing volume, particularly the new leasing volume that was done in 22. A lot of those dollars got spent in 23 and was an above average amount. I think 24 is likely to look more like a normalized year.

Brandon: We think it's probably more likely to kind of migrate down during 2024 at least that's what we kind of have baked into the outlook. So I expect a lot of 23 was.

Speaker Change: All of the leasing volume, particularly the new leasing volume that was done in 'twenty two a lot of those dollars got spent in 2023.

It was an above average amount.

Speaker Change: I think 24 is likely to look more like a normalized year. So our expectations are we will see those numbers come down and we will look more like probably prior years.

Brendan Maiorana: So our expectations are we'll see those numbers come down, and we'll look more like prior years, you know, that you saw before prior to 2023 in terms of that spend. So, you know, maybe in the kind of 15 to $20 million reduction range would be our expectation. But again, that, you know, it's based on kind of the current business plan. I think it would be a nice result if the leasing volume remains very high the way that it has for the first month of the year here. And we spend a lot of capital. If that's the case, I think we'd be happy with that result.

Speaker Change: That you saw before prior to 2023 in terms of that spend so it might be in the kind of $15 million to $20 million reduction range would be our expectation, but again that it's.

Speaker Change: That is based on kind of the current business plan I think it would be a nice result, if leasing volume remains very high the way that it has for the first month of the year here and we spend a lot of capital. If that's the case I think we'd be happy with that result, but I think our expectation and what's in the business plan now it's going to look much more spend is going to much.

Robert Chapman Stevenson: But I think our expectation and what's in the business plan now is that spend is going to look much more like it did prior to 2023. But we'll see kind of how that goes. Okay, that's helpful. Thanks, guys. Appreciate the time. Our next question comes from Nick Tillman from Baird. Nick, your line is now open.

Speaker Change: Look much more like it did prior to 2023.

Speaker Change: But we'll see how that goes.

Speaker Change: Okay. That's helpful. Thanks, guys appreciate the time.

Speaker Change: Our next question comes from Nick Tillman from Baird Nick your.

Nick Tillman: Your line is now open.

Nick Joseph: Hey, good morning, guys. Maybe starting with some comments from Ted or Brian on kind of the lease term dynamics you guys commented on earlier. Some of your West Coast peers had mentioned that tenants are kind of seeking shorter-term deals, but that doesn't really seem to be the case for your guys' markets based on lease durations increasing quarter over quarter for the last four to five quarters. I guess what's driving that? Is it just the type of tenants in your markets or the size of your tenants? Hey Nick, it's Brian.

Nick Tillman: Hey, good morning, guys, maybe just starting with some comments from tighter Brian on kind of the lease term dynamics. You guys are you commented on earlier some of your West Coast peers had mentioned that.

Nick Tillman: Tenants are kind of sneaking like shorter term deals, but that doesn't really seem to be the case for you guys is market based on lease duration increased quarter over quarter for the last four to five quarters I guess, what's driving that is that just the type of tenants in your markets or the size of your tenants.

Nick Tillman: Hey, Nick it's Brian I think it's partly just the conviction.

Brian M. Leary: I think it's probably just the conviction of the folks who are opting to make their workplace a priority. Sort of the return to work, the return of the office, has got steam here in our markets, and I think folks have kicked the can and done the shorter-term deals previously, so that's where we're getting conviction and a little larger size. I don't know if it's anything other than that.

Brian M. Leary: The folks who are opting to make their workplace a priority as sort of the return to work as and return to the office has got steam here in our markets and I think folks have kicked the can and done. This shorter term deals previously so that's where we're getting conviction and little larger size I don't know if its anything other than that I don't think so.

Brian M. Leary: I don't think it's some weird, you know, stat, but that's what we're seeing. Maybe following up on that, Brian, just on Orlando in specific, you didn't call it out in your commentary, but the rate change there was over 22%. So anything to call out in that specific market, what you're seeing, whether it be like tenant type or the type of deals you're doing there? Well, I think what's interesting about Orlando, right, there's... There are so many macro glacial trends that are heading to Orlando and Central Florida and Florida. And so, there's zero new development underway. There's zero new development that's been added as competitive.

Brian M. Leary: Some weird.

Brian M. Leary: Stat that popped out.

Brian M. Leary: But.

Brian M. Leary: And that's what we're seeing.

Brian M. Leary: And maybe following up on that Brian just on Orlando and specific you didn't call. It out in your commentary, but rate change there was over 22% so anything to call out in that specific market, what youre seeing whether it be like tenant type.

Brian M. Leary: The type of deals Youre doing that.

Well I think what's interesting about Orlando right. There's so many macro <unk> trends that are heading to Orlando in central Florida, and in Florida, and so there is zero.

Brian M. Leary: New development underway there is zero new development has been added.

Brian M. Leary: And so we have well-positioned assets. We've been able to invest in them kind of through this period. So some of the earlier questions about zombie buildings, not only that talk about funding PI and commissions, that also are difficult to fund kind of repositionings or what we call hybridizing, where we kind of upgrade the experience. So we've done that kind of right through the pandemic, you know, in terms of our workplace making.

Brian M. Leary: As competitive and so we have well positioned assets, we've been able to invest in them kind of through this period. So some of the earlier questions about zombie buildings, not only that talk about funding Ti and commissions that also is difficult to fund kind of repositioning or what we call Hybridizing, where we kind of upgrade the experience. So we've done that.

Brian M. Leary: Right through the pandemic.

In terms of our workplace, making I think the Orlando portfolio has been the beneficiary of that we've leaned into our spec suites, Orlando, who is kind of caught up to the rest of.

Brian M. Leary: I think the Orlando portfolio has been the beneficiary of that. We've leaned into our spec suites, and Orlando has kind of caught up to the rest of its partners across the markets. And that's why we're seeing such great results. That's helpful.

Brian M. Leary: Her partners across the markets and that's why we're seeing such great results there.

Speaker Change: That's helpful. And then maybe last one for me on the disposition, maybe can we break out the difference between just land sales than regular property sales and then kind of are we going to assume more of these bite sized deals similar to the one you did in Nashville, and <unk> like $25 million to $30 million transaction.

Nick Joseph: And then maybe last one for me, on the dispositions, maybe can we break out the difference between just land sales and regular property sales? And then kind of, are we going to assume more of these bite-sized deals similar to the one you did in Nashville and 4Q, like $25 to $30 million transactions? Sure. So just let me summarize what we did for dispositions in 2023. We closed on roughly $104 million of dispos. That included both land and buildings. It had four buildings, totaling $83 million, and then $21 million of land in two separate parcels.

Speaker Change: Sure. So just let me summarize what we did for dispositions in 2023, we closed roughly $104 million of dispose that include both land and buildings those four buildings totaling $83 million and then $21 million of land in two separate parcels as sort of a mix between.

Brendan Maiorana: It was sort of a mix between single customer buildings and multi-customer buildings, and then the land. You know, we sold them throughout the year. The cap rates ranged from really high fives for a single customer long-term lease to low nines for the multi-customer buildings with sort of a low waltz. So most recently, it was ramparts in the fourth quarter.

Speaker Change: Single customer buildings, and multi customer buildings and then the land.

Speaker Change: We told them throughout the year the cap rates range really high fives for a single customer long term lease to low nines for the multi customer with sort of a low Walt so most recently he was rahm parts in the fourth quarter is 97% leased building three and a half year, Walt and that was sort of a low nine.

Brendan Maiorana: It was 97 percent lease building, three and a half year waltz, and that was sort of a low nine percent cap rate. So I think that mix is sort of what you'll see this year as well. It's probably going to be a mix of land and multi-tenant buildings. It may not have any single tenant. I need to think about that, but you know, we do have about $79 million under contract and due diligence, and we think that will close somewhere in the first half of the year, and that's sort of multi-tenant, similar to what we saw last year on the multi-tenant side. Smaller assets; those are the ones that are easier to get done. Smaller is easier, larger is harder, and so it's a very similar mix, probably, for what you'll see this year.

Speaker Change: Cap rates. So I think that mix is sort of what you'll see this year as well, it's going to be probably a mix of land and multi tenant buildings may not have any single tenant I need to think about that but we.

Speaker Change: We do have.

Speaker Change: $79 million under contract in due diligence.

Speaker Change: And we think that'll close somewhere in the first half of the year and that's sort of multi tenant similar to what we saw last year on the multi tenant side smaller assets. Those are the ones that are easier to get done.

Speaker Change: Smaller is easier than larger is harder.

Speaker Change: So it's a very similar mix, probably what youll see this year.

Nick Joseph: That's it for me, thanks guys. Thank you. Our next question comes from Camille Bonnell from Bank of America. Camille, your line is now open.

Speaker Change: That's it for me thanks, guys.

Speaker Change: Thank you.

Camilo Bundle: Our next question comes from Camilo bundle from Bank of America. Neil Your line is now open.

Camille Bonnell: Hi everyone, good to see the progress on backfilling some of your larger expiries. Given your strategic priorities of renewing tenants as early as possible, how are the early renewal discussions tracking in your leasing pipeline? Hey, Camille, Brian here.

Hi, everyone. Good to see the progress on back filling some of your larger expiring.

Camilo Bundle: Given your strategic priorities are renewing tenants as early as possible. How are the early then you're all discussions tracking in your leasing pipeline.

Camilo Bundle: Hey, <unk>, Brian here, they are tracking well and one of the earlier questions too is why we're maybe seeing more term.

Brian M. Leary: They're tracking well. And, well, you know, one of the earlier questions, too, was why we're maybe seeing more term in our portfolio. We're also able to lean in on the TI, as Ted mentioned earlier, customers would trade that TI for term, and we have that ability being unencumbered by property level debt in most cases. So I think that's kind of helped. The other thing, too, is that we do have that kind of captive audience, and we have those relationships.

Brian M. Leary: In our portfolio, we're also able to lean in on the Ti as Ted mentioned earlier customers.

Brian M. Leary: Would trade at Ti for term and we have that ability being unencumbered by property level debt in most cases.

Brian M. Leary: So I think that's kind of helped the other thing too is we do have that kind of captured audience. So and we have that relationships, we lease our own buildings, we operate our own buildings, we manage your own buildings and so we have that those relationships with our customers. So it's a little more of a natural conversation to start thinking about how to upgrade their space to make it as competitive to recruit retain and return there.

Brian M. Leary: We lease our own buildings, we operate our own buildings, we manage our own buildings, and so we have those relationships with our customers, so it's a little more of a natural conversation to start thinking about how to upgrade their space to make it as competitive to recruit, retain, and return their talent. So are you seeing that activity start to pick up compared to a year ago? Because we've been hearing, like, kind of just continue to kick the can down the road. So, yeah, let me jump in and try.

Brian M. Leary: Tom went back to the office.

So are you seeing that activity start to pick up compared to a year ago, because we've been hearing kind of its discontinued to kicked out the can down the road.

Brian M. Leary:

Speaker Change: So yes, let me jump in and try so I'm thinking about just some of our upcoming maturities.

Theodore J. Klinck: So, I'm thinking about just some of our upcoming maturities. I mean, Brian talked about it in his prepared remarks on, you know, in Buckhead, the 168,000 square feet at the end of September. We've already backfilled 50,000 of that, and we have over 350,000 square feet of tour activity and some interest, a lot of interest in the asset. So, we feel good about backfilling that specific space, and you go up to EQT Plaza. Brian mentioned we've already backfilled one floor there, and we have interest, you know; we have proposals out on several other floors. So, again, the activities really picked up, I think, from mid-last year at EQT Plaza. You go to Bassberry, you know, we're getting ready to start implementing our highwitizing plan there. We're still a year out from Bassberry leaving in February of 2025, but we've got several multi-floor users that we've got proposals for, and they're touring on. Nothing, you know, nothing's etched by any stretch, but just the activities, seeing the tour activity pick up is pretty encouraging from our standpoint.

Speaker Change: Brian talked about it in his prepared remarks on in Buckhead. The 168000 square feet in the September we've already backfield 50000 that we have over 350000 square feet of tour activity.

Speaker Change: And.

Speaker Change: Some interest a lot of interest in the assets. So we feel good about backfill in that specific.

Speaker Change: Specific space when you go up to EQT Plaza, Brian mentioned, we've already back filled one floor there and we have interest we have proposals out on several other floors. So again the activity has really picked up I think for mid last year that EQT Plaza.

Speaker Change: You go to a bass Berry, we're getting ready to start implement our <unk> plan there were still a year out from bass Berry, leaving in February of 2025, but we've got several multi floor users.

Speaker Change: We've got proposals on their touring on nothing nothing etch by any stretch, but just the activity seeing the tour activity pick up it's pretty encouraging from our standpoint.

Speaker Change: Got it and you've placed a big emphasis on securing additional liquidity in the past year and have been very successful at raising capital.

Camille Bonnell: And you've placed a big emphasis on securing additional liquidity in the past year and have been very successful at raising capital. So given you've pretty much covered your capital needs, how much more liquidity are you seeking? Hey Camille, it's Brendan.

Speaker Change: So.

Speaker Change: Given you've pretty much covered your capital needs how much more of liquidity are you seeking to raise.

Speaker Change: Okay.

Brendan Maiorana: Hey, Camille it's Brendan.

Brendan Maiorana: I would say that there's not capital that we feel that we need to raise, but I do think, if you go back to Ted's comments at the beginning of the year, at the beginning of the script, just talking about continual portfolio improvement, I do think we feel like there are asset sales that we likely will get done. I think the capital raising that will get done during this year will be likely to be done via asset sales as opposed to going out to the debt markets. I don't think we'll be raising debt capital this year, but I do think we'll get capital in the door through disposition processes. Finally, looking at your cash flows for this next year, has there been discussions with the board on whether this could, The dividend could be a source of capital just given the high yield, or is the view to continue paying it as long as it's covered? Sure. Let me start off. Maybe Brendan may want to supplement the answer. But look, it's something we talk about virtually every quarter with the board.

Brendan Maiorana: Would say that there is not capital that we feel that we need to raise but I do think if you go back to just Ted's comments at the beginning of the year. So at the beginning of the script just talking about continual portfolio improvement I do think we feel like there are asset sales that we likely will get done so I think the cap.

Brendan Maiorana: Raising that will get done during this year is likely to be done via asset sales as opposed to going.

Brendan Maiorana: Going out to the debt markets, whether its I don't think we envision raising debt capital this year, but I do think we will get capital in the door through disposition proceeds.

Brendan Maiorana: Oh.

Finally, then looking at your cash flows for the next year has there been discussions with the board on whether that's correct.

Brendan Maiorana:

Brendan Maiorana: The dividend could be a source of capital just given the high yield or is that he is to continue paying it as long as it's covered.

Speaker Change: Sure, let me start off and maybe Brendan may want to supplement the answer but look it's something we talk about virtually every quarter with our board.

Theodore J. Klinck: You know, as we look at our dividend, it is covered by our cash flow, and we think the dividend is an important part of the total return for us. So, you know, we've been pretty proactive the last few years with respect to our CapEx spend, and our cash flows have been improving. So, based on the outlook that we see for the business, we feel very comfortable with the dividend at this time. Thank you for taking my questions.

Speaker Change: As we look at our dividend it is covered by our cash flow and we think the dividend is important part of total return for us So we've been pretty proactive.

Speaker Change: A few years with respect our capex spend and our cash flows have been improving so.

Speaker Change: Based on the outlook, we see for the business, we feel very comfortable with the dividend at this time.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Thank you for taking my question.

Camille Bonnell: Thank you. Our next question comes from Ronald Kamdem from Morgan Stanley. Ronald, your line is now open.

Speaker Change: Right.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Ronald Camden from Morgan Stanley Ronald Your line is now open.

Ronald Kamdem: Hey, just a couple quick ones. Staying with the disposition. If you talked about 75 in the market, maybe more to come, any sort of sense on the cap rates on those and how are you guys thinking about, you know, the quality of those assets, seller financing, just any more color on those would be helpful. With respect to what we have in the market, again, they haven't closed, so I'm hesitant to talk about cap rates. Hopefully, we'll have something to talk about on maybe next call, Ron. Seller financing, there is one building of what we have out there that we're providing a short-term, I think it was a 12-month short-term financing, very similar to, I guess, earlier last year we did a six-month financing on one. One small asset of that $79 million, we'll have a seller financing for one year. But other than that, it's an all-equity purchase.

Ronald Kamdem: Hey, just a couple quick ones staying with the dispositions.

Ronald Kamdem: You talked about 75 in the market may be more to come.

Ronald Kamdem: <unk> sort of sense on the cap rates on those Ed.

Ronald Kamdem: Are you guys thinking about the quality of those asset seller financing.

Ronald Kamdem: Any more color on those would be out would be helpful.

Ronald Kamdem: Okay.

Ronald Kamdem: Sure.

Ronald Kamdem: With respect to what we have in the market again, they haven't closed hesitant to talk about cap rates.

Speaker Change: Hopefully, we'll have something to talk about maybe next call Ron.

Speaker Change: Seller financing there is one building of what we have out there that we'll provide in the short term I think is a 12 month short term financing. There is similar to I guess earlier last year, we did a six month financing on one so one small asset that $79 million and I will have a seller financing for one year.

Speaker Change: But other than that it said, it's now all equity purchase.

Speaker Change: Brian I would I'll, just say in terms of cap rates.

Brendan Maiorana: Ron, I'll just say in terms of cap rates, I think it's fair if you kind of looked at the cap rates and the average sort of blended for 2023, if you thought of something kind of comparable to that, you know, in broad strokes, I would say, you know, not with the 75 that we expect in the first half of the year, but just kind of as you think of that over the course of 2024, 2025, Helpful.

Brian M. Leary: I think it's fair if you kind of looked at the cap rates and the average sort of blended for 2023, if you thought of something kind of comparable to that in broad strokes I would say not.

Brian M. Leary: Not with the 75 that we expect in the first half of the year, but just kind of as you think about that over the course of 2020 for 2025, I think thats a reasonable gauge to kind of use if you're trying to model that.

Brian M. Leary: Helpful.

Ronald Kamdem: And then my second one is just going back to the questions on sort of the cash flows situation and so forth. So as you think about, the lease expirations come starting at the back half of this year into 25, potential Pittsburgh sales, have you guys sort of looked at an analysis of where leverage could potentially go in those scenarios? and, you know, how you think about preserving cast under those scenarios and so forth.

Brian M. Leary: Then my second one is just going back to the questions on sort of the cash flows.

Brian M. Leary: Situation and so forth so as you think about.

Brian M. Leary: The lease explorations starting at the back half of this year into 25 potential Pittsburgh sale have you guys sort of looked at an analysis of where where leverage could potentially go in those scenarios.

Brian M. Leary: How do you think about preserving cash flows.

Brendan Maiorana: So, the question really is, Police Exploration.......... [inaudible] Yeah, Ron, good question.

Brian M. Leary: Under those scenarios and so forth so.

Brian M. Leary: It really is just.

Brian M. Leary: With the lease explorations potential Pittsburgh sale, how does the balance sheet leverage sort of trend.

Speaker Change: Under those thanks.

Yes, Bryan. It's good question. So I think we are pretty comfortable with kind of where we are now of course, we're going to be spending dollars on the development pipeline as we migrate throughout 2024 and even into 2025 without really a corresponding increase certainly in.

Ronald Kamdem: So, I think we are pretty comfortable with kind of where we are now. Of course, we're going to be spending dollars on the development pipeline as we migrate throughout 2024 and even into 2025 without really a corresponding increase, certainly in 2024, in EBITDA or NOI. So, I think you'll see a little bit of upward movement in the debt to EBITDA ratio as you kind of go throughout the year, but that is going to then come down as those development properties deliver and stabilize and generate significant amounts of NOI. So, with all of that, I think we're very comfortable kind of when we forecast even when we get to peak levels of debt to EBITDA, where we will be with the embedded growth that that number will come down. And all the while, I think we're also very comfortable with where our cash flows are with respect to the dividend.

Speaker Change: 24 on EBITDA or NOI, So I think youll see a little bit of of upward movement in the debt to EBITDA ratio as you kind of go throughout the year.

Speaker Change: But that is going to be then we will come down as those development properties deliver and stabilize and generate significant amounts of NOI. So with all of that I think we're very comfortable kind of when we forecast even when we get to peak levels of debt to EBITDA, where we'll be with them.

Speaker Change: Then the embedded growth that that number will come down and all the while I think we're very comfortable also with where our cash flows are with respect to the dividend. So I think we feel like we've got a lot of a lot of good growth drivers and we're coming at this from a position of strength. If you think about dividend coverage in 2023 going.

Brendan Maiorana: So, I think we feel like we've got a lot of good growth drivers and we're coming at this from a position of strength if you think about dividend coverage in 2023 going forward. So, I think not only do we have a lot of growth drivers with respect to the kind of cash flow going forward, but we're also coming at it from a position of strength by thinking about it from 2023 levels. Thanks so much. Our next question comes from Vikram Malhotra from Mizzou. Vikram, your line is now open. Hey, good morning. This is Giorgio on for Vikram.

Speaker Change: So I think not only do we have a lot of growth drivers with respect to kind of cash flow going forward. We're also coming at it from a position of strength from from thinking about it from 2023 levels.

Speaker Change: Helpful. Thanks, so much.

Speaker Change: Our next question comes from Vikram Malhotra from Mizuho Vikram. Your line is now open.

Speaker Change: Hey, Good morning. This is Georgia on for Vikram can you just walk us through the occupancy trajectory in 2024 and can you provide more color on known move outs over the next two years.

Vikram Malhotra: Can you just walk us through the occupancy trajectory in 2024 and can you provide more color on known move-outs over the next two years? Hey, Georgie, it's Brendan.

Speaker Change: Hey, George it's Brendan ill start and then maybe I'll hand, it over to Ted O'brien for some color on the on the large expirations coming up so.

Brendan Maiorana: I'll start and then maybe I'll hand it over to Ted or Brian for, you know, some color on the large expirations coming up. So, as is typical, you know, kind of seasonalally for us, and we've talked about this in years past, we usually have kind of a seasonal dip in the first quarter. So, no single large users, but there were a handful of expirations that happened at the beginning of January that were single floor users. So, we expect occupancy to kind of dip a little bit in the first quarter and then sort of hold steady, maybe migrate up a little bit as you kind of migrate into the second and third quarters. And then we've got the expiration of Novellis late in the third quarter and then at the beginning of the fourth quarter with EQT.

Brendan Maiorana: As is typical kind of seasonally for us and we've talked about this in years past, we usually have kind of a seasonal dip.

Theodore J. Klinck: And in the first quarter. So no single large users, but there's a handful of explorations that happened at the beginning of January that are single floor users. So we expect occupancy to dip a little bit in the first quarter and that sort of hold steady maybe migrate up a little bit as you kind of migrate into second and third quarters.

Theodore J. Klinck: And then we've got the exploration with Novellus late in the third quarter and then in the beginning of the fourth quarter with EQT. So I think you'll see occupancy kind of low at the end of this year.

Theodore J. Klinck: So, I think you'll see occupancy kind of low at the end of this year with that average kind of in the range of 87 to 89, as we discussed. But that doesn't, I just, I'll mention this. We have, and I think Brian talked about this on the call, but we've got about 320,000 square feet of signed, not yet commenced leases just between Cool Springs 5, 2500 Century Center, and Tampa Bay Park. There are only about 100 of those that we expect to kind of move into occupancy by year end 24.

Theodore J. Klinck: With with that average kind of.

Theodore J. Klinck: In the in the range of 87 to 89, as we discussed but that doesn't I. Just mentioned this we had and I think Brian talked about this on the call, but we've got about three.

320000 square feet of signed not yet commenced leases just between cool Springs, 520, 500 century Center and Tampa Bay Park, There's only about 100 of that that we expect to kind of move into occupancy by year end 'twenty four so even when you kind of go into 25%.

Theodore J. Klinck: So, even when you kind of go into 25, there's still a fair amount of leasing that we've done that will come into occupancy in 25. So, I think, you know, and then we'll, we expect to continue to lease space on existing or future vacancy as we kind of go forward throughout 24, which we don't expect to be in occupancy in 24, but will contribute to future use. And then this is Ted.

Theodore J. Klinck: Still a fair amount of leasing that we've done that will come into occupancy in 25. So I think and then we will we expect to continue to lease space on existing or future vacancy as we kind of go forward throughout 2000 and for which we don't expect to be in occupancy in 'twenty, four but will contribute to future years.

Theodore J. Klinck: And then this is Ted jump in sort of went through a few of the known move outs. All go through quickly one more time novellus, we backfill at 50000 feet. So novellus and 168000 feet September 24, we backfill at 50, we have good prospects for 350 of the remaining 100 or so.

Theodore J. Klinck: Why don't I jump in? I sort of went through a few of the known move-outs, so I'll go through them quickly one more time. You know, Novellas, we've backfilled 50,000 feet, so Novellas is 168,000 feet on September 24. We backfilled 50. We have good prospects for 350 of the remaining 100 or so, 120,000, so we feel really good about the activity. EQT is October 24,

Theodore J. Klinck: 120000, so we feel really good there the activity EQT is.

Theodore J. Klinck: October 24, 317000 feet, we backfill 16000 square feet basically acid backfill, we went direct with the subtenant of EQT. So we're happy to do that and we've got pretty good activity on some additional space. So.

Theodore J. Klinck: We've backfilled 16,000 square feet. Basically, I said backfill. We went direct with a subtenant of EQT, so we're happy to do that. We've got, you know, pretty good activity on some additional space, so we'll see there. It's still early. Then the Department of Revenue, we have not talked about that one. They're in like, I think, 255,000 feet.

Speaker Change: So we'll see there it's still early.

Speaker Change: Department of revenue, we have not talked about that one.

Speaker Change: I think 255000 feet that expire at the very end of the year 2024, So theyre vacating, but we've retained to them as we mentioned in our prepared remarks, we're moving them Theyre downsizing, we're moving within that same park to about 110000 square feet and a different building than we would've loved to keep them in the building.

Theodore J. Klinck: They expire at the very end of the year, 2024, so they're vacating, but we've retained them, as we mentioned in our prepared remarks, removing them. They're downsizing. We're moving within that same park to about 110,000 square feet in a different building. We would have loved to keep them in the building they're in.

Theodore J. Klinck: It's just very difficult from a layout perspective, so we've got that, and then on that building, we're actually looking at various scenarios, what the strategy is for the building the DOR is vacating, including a potential residential conversion, so more on that. You know, we'll know more in the next 90 to 120 days, probably, with respect to the DOR. We do have a 150 Fayetteville, our headquarter building here in Raleigh that we're sitting in, Wells Fargo, is vacating 78,000 square feet at the end of October of this year, and we knew that. We bought this building back in 2021, and it was a known vacate at that point, so we're actually excited to get that 78,000 square feet includes about 16,000 square feet of a branch location that's on the first floor of the building that we're going to turn into state-of-the-art amenities for the building, which has been our plan since 2021, so we're excited to get that back, so we'll have about 60,000 square feet to release there, and we've got some really neat plans for that, so that's one we'll get taken care of, and then the Baskerville, which I mentioned on a prior question, that we've got several multi-tenant floors, interest in those, again, early prospects, just tour activity, but we feel good given we're still a year away. Thank you. That is very helpful. And just a last one for me.

Speaker Change: They just it's just very difficult.

Speaker Change: Difficult from a lay out perspective, so we've got that and then.

Speaker Change: On that building were actually.

Speaker Change: Looking at various scenarios.

Speaker Change: The strategy is for the building the DLR is vacating, including a potential residential conversion so more on that we'll know more in the next 90 to 120 days probably.

Speaker Change: With respect to the DLR, we do have 150 Fayetteville, our headquarter building here in Raleigh that were sitting in Wells Fargo is vacating 78000 square feet at the end of October of this year.

We knew that we bought this building back in 2021 and it was a known vacate at that point.

Speaker Change: So we're actually excited to get that 78000 square feet includes about 16000 square feet.

Speaker Change: The branch location that's on the first floor of the building that we're going to turn into state of the art amenities for the building, which has been our plan. Since 2021. So we're excited to get that back. So we'll have about 60000 square feet to release, there and we've got some really neat plans for that so that's one will get taken care of and then the basket very which I mentioned.

Speaker Change: On a prior question that we've got several multi tenant floors.

Speaker Change: Interest and those again early prospects just tour activity, but we feel good given we're still a year away.

Speaker Change: Yes.

Speaker Change: Thank you that's very helpful and just a last one for me with all the news about <unk>, how do you think that translates to your markets.

Theodore J. Klinck: With all the news about tech layoffs, how do you think that translates to your market? Thank you. Thank you. Thank you. Yeah, you know, we're not a big tech market, you know, our, as you know, Raleigh more than probably anybody, but in general, we have a pretty diversified customer base, don't have a lot of exposure to tech. I think several years ago, maybe we wish we did when tech was gobbling up the space, but we don't have a lot of, you know, exposure in our markets to tech.

Speaker Change: Yeah.

Speaker Change: Yes, we're not a big tech market.

As you know Raleigh more than probably anybody but in general we're pretty diversified customer base don't have a lot of exposure to tech I think several years ago, maybe we wish we did when teck was gobbling up the space, but we.

Speaker Change: We don't have a lot of exposure.

Speaker Change: Exposure in our markets to tech.

Theodore J. Klinck: Thank you. Our next question comes from Dylan Burdzinski from Green Street. Dillon, your line is now open.

Speaker Change: Okay.

Speaker Change: Our next question comes from Dillon put into <unk> from Green Street.

Your line is now open.

Dylan Burdzinski: Thanks for taking the question, guys, and just one for me. So I guess just as we think about occupancy dipping throughout 2024 into early 2025, if I sort of pair that up with some of the comments you just made, Brendan, and the comments around sort of good activity on near-term move out, I guess it seems to us that the least percentage, the drop-off, and the least percentage moving forward should be a lot less than the drop-off in occupancy, and therefore, as we think about occupancy in 20 Is that fair to say?

Speaker Change: Yeah.

Dillon: Thanks for taking the question guys. Just wanted from me. So I guess as we think about occupancy dipping throughout 2024 and to early 2025 by sort of pair that up with some of the comments you just made Brendan.

Dillon: And the comments around sort of good activity on near term move outs I guess, it seems to us that the lease percentage drop off in lease percentage moving forward should be a lot less than the drop off in occupancy and therefore, as we think about occupancy in the 2011.

Dillon: And beyond you should recover what is loss relatively quickly is that fair to say.

Brendan Maiorana: Yeah, Dylan, that's a good question. I certainly think that if the activity that we're seeing in terms of prospect activity translates into leases, as we're hopeful that it will, your outlook would prove correct. Now, you know, there's execution that needs to get done. So it's not to say that this is, you know, that it's a foregone conclusion.

Speaker Change: Yes, it's a good question I, certainly think that if the activity that we're seeing in terms of prospect activity translates into leases as we're hopeful that it will that.

Speaker Change: Your outlook would prove correct.

Speaker Change: Now there's a lot.

Theres execution that needs to get done so that's not to say that this is.

Speaker Change: It's a foregone conclusion, but I think if if activity levels hold up and we're able to translate what we think are good prospect activity into leases then I do think that that is that your outlook would prove correct.

Dylan Burdzinski: I think if activity levels hold up and we're able to translate what we think are, you know, the good prospect activity into leases, then I do think that your outlook would prove correct. Great. Thanks, guys. Next question comes from Peter Abramowitz from Jefferies. Peter, your line is now open. Thank you. Yes, both my questions have been answered.

Speaker Change: Great. Thanks, guys.

Speaker Change: Great.

Speaker Change: Our next question comes from Peter B R movies from Jefferies. Peter Your line is now open.

Speaker Change: Okay.

Speaker Change: Thank you, yes, most of my questions have been answered.

Speaker Change: Just one here have you noticed any any change in the last call. It 60 to 90 days as the macro backdrop and the rate backdrop has sort of shifted here.

Peter Abramowitz: Have you noticed any change in the last, call it, sort of 60, 90 days as the macro backdrop and the rate backdrop have sort of shifted here? Have you noticed any change in the environment and demand for office buildings in your market, in general? I guess, just from a general perspective and then also as it relates to the assets that you're out in the market with, has there been any change in appetite for office buildings? No, I don't think so.

Peter Abramowitz: Have you noticed any any change in the environment and demand for office buildings in your market in general.

I guess just from a general perspective, and then also as it relates to the assets that are out in the market with.

Peter Abramowitz: I guess as any.

Peter Abramowitz: The change in appetite for for office transaction.

Speaker Change: No I don't.

Speaker Change: So I think the assets were in the market with a sort of already been tied up. So we don't have a whole lot of real time data points with respect to that I do think from what we're hearing is youre going to see some more stuff coming to the market from the brokers I do think after the year turned rates came down.

Theodore J. Klinck: I think, you know, the assets we're in the market with have sort of already been tied up, so we don't have a whole lot of real-time data points with respect to that. But I do think, from what we're hearing, you're going to see some more stuff coming to the market from the brokers. I do think after the year turned, rates came down, and brokers are a little bit more confident. There's a lot of dry powder sitting on the sidelines.

Speaker Change: Brokers are little more confident there is a lot of dry powder sitting on the sidelines. So I would fully expect once buyers have a clear understanding of what their cost of capital is going to be in the availability of capital, it's still tough to get an office loan today.

Peter Abramowitz: So I would fully expect that once buyers have a clear understanding of what their cost of capital is going to be and the availability of capital, it's still tough to get an office loan today. I think virtually all the capital sources are very difficult, but I do think it may loosen up in the next six to nine months. So I think transaction activity is going to pick up, but I think it's going to be in the back half of the year, likely before we see a whole lot of that. But there's a lot of money that still wants to invest. I got it.

Speaker Change: Virtually all of the capital sources, it's very difficult, but I do think it may loosen up in the next six to nine months. So I think transaction activity is going to pick up but I think it's going to be in the back half of the year likely before we see a whole lot of that but there's a lot of money to still wants to invest.

Speaker Change: Got it thanks.

Omotayu Oksanya: Thanks, Jed.... Our next question comes from Omotayu Oksanya from Deutsche Bank. Omotayu, your line is now open. Yes, good afternoon, everyone.

Speaker Change: Uh huh.

Speaker Change: Okay.

Speaker Change: Our next question comes from almost Tayo Okusanya from Deutsche Bank. Your line is now open.

Tayo Okusanya: Hi, Yes. Good afternoon, everyone. Just in regards to the tenant that was moved to cash accounting, which again I'm assuming existing tenants are taking activities.

Brendan Maiorana: Just in regards to the tenant that was moved to cash accounting, which again, I'm assuming is the same tenant, taking the activity space. Curious again, again, since you have to move them to cash accounting, how do you kind of get comfortable with the renegotiated lease so that again, 12 months down the line, they're not kind of back in the same situation? The Bulletproof Executive 2013, Yeah, Tyo. Good question overall.

Tayo Okusanya: Curious again <unk> got to move them to cash accounting.

Tayo Okusanya: To get comfortable with the renegotiated.

Speaker Change: Again, 12 months down the line Youre not kind of back in the same situation.

Okay.

Speaker Change: Yeah Tayo, it's good question overall.

Tayo Okusanya: Yes, I think so first of all the standard to kind of put somebody on GAAP accounting is that you have you're more than probable in terms of collecting that rent throughout the duration of the term. So there is a very long term lease that.

Omotayu Oksanya: Yeah, I mean, I think, you know, first of all, the standard to kind of put somebody on gap accounting is that you have a higher probability, you're more than probable in terms of collecting that rent throughout the duration of the term. So this is a very long-term lease that we have. And, you know, the business cycle is a little bit uncertain.

Tayo Okusanya: That we have.

Tayo Okusanya: And the business cycle is a little bit uncertain.

Brendan Maiorana: And I think we're comfortable with kind of where we are because there's not a lot of capital that we will incrementally invest in the space, and there is, you know, a meaningful amount of rent that we expect over the life of the term. But I think just due to, you know, being conservative in terms of how we would like to account for this, I think we felt it was prudent, and we talked to our auditors about this, to put them on a cash basis. So it's not to suggest that we don't think that there is collection that's likely or collect a significant amount of rent.

Tayo Okusanya: And I think we're comfortable with kind of where we are because theres not a lot of capital that we will incrementally invest into the space.

Tayo Okusanya: And there is a meaningful amount of rent that we expect over the life of the term, but I think just due to.

Tayo Okusanya: Being conservative in terms of how we would like to account for this I think we felt it was prudent and we talk to our auditors about this to put them on cash basis. So it's not to suggest that we don't think that there is collection, that's likely or collect a significant amount of rent, but I think just out of an abundance of caution we move them out of <unk>.

Brendan Maiorana: But I think just out of an abundance of caution, we move them on a cash basis. And I will say that that's not dissimilar from things that we do with other industries that we tend to view as a little bit more volatile than maybe our core customer base. So, as an example, most of the retailers that we have within our portfolio, we just move them on a cash basis.

Tayo Okusanya: <unk> accounting and I will say that that's not dissimilar from things that we do with other.

Tayo Okusanya: Industries that we tend to view as a little bit more volatile than maybe our core customer base. So as an example, most of the retailers that we have within our portfolio. We just move them on a cash basis. That's just standard practice for us so.

Brendan Maiorana: That's just standard practice for us. So, I think we feel very good about the modified lease that's there. I think we feel very optimistic about the long-term outlook for that building in particular. But just out of an abundance of caution, we didn't want to start to record gap revenue in 24 months, given the long-term nature of that lease.

Tayo Okusanya: So I think we feel very good about the modified lease that's there I think we feel very optimistic about the long term outlook for that building in particular, but just out of an abundance of caution we didn't want to start to record GAAP revenue in 2004, and given the long term nature of that lease.

Omotayu Oksanya: Great, thank you. Great to see all the listings in the DVD portfolio as well. Thanks, Tyler. We currently have no further questions, so I'd like to hand you back to the management team for closing remarks. Over to you. Well, thanks, everybody, for joining the call today. Thanks for your great questions, and thank you for your interest in Highwoods. We look forward to talking to you next quarter, if not before. Have a great day. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your line.

Great. Thank you Greg.

Speaker Change: And the DVD portfolio as well.

Speaker Change: Thanks Tayo.

We currently have no further questions. So I'd like to hand back to the management team for closing remarks over to you.

Speaker Change: Thanks.

Sure.

Speaker Change: Well, thanks, everybody for joining the call today. Thanks for your great questions and thank you for your interest in <unk> and we look forward to talking to you next quarter, if not before have a great day.

Speaker Change: Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.