Q1 2024 Highwoods Properties Inc Earnings Call

Speaker Change: [music].

Thank you all for joining I would like to welcome you to the Highwood properties Q1, 'twenty 'twenty four earnings call. My name is breaker and I will be your moderator for today.

Moderator: Thank you all for joining. I would like to welcome you all to the Highwoods Properties Q1 2024 Earnings. My name is Brieke, and I will be your moderator for today.

Moderator: All lines are on mute for the presentation portion of the call. We'll have an opportunity for questions and answers at the end. If you would like to ask a question, and you have dialed in today, please press star 1 on your touch screen. If you change your mind at any time, please press star then 2.

All lines are on mute the presentation portion of the cool well good opportunity for questions and answers at the end.

Speaker Change: If you would like to ask a question.

Speaker Change: And do you have dialed in today. Please press star one on your touch Frankie.

If you change your mind any time. Please press Star then two.

Moderator: Thank you. And now I would like to pass the conference over to your host, Hannah True, Manager of Corporate Finance and Strategy, to begin. So, Hannah, please go ahead.

Speaker Change: Thank you.

Speaker Change: Now I would like to pass the conference over to Johan.

Johan: How does true manager, that's corporate finance and strategy to begin so hunter. Please go ahead.

Johan: Thank you operator, and good morning, everyone. Joining me on the call. This morning are Ted Klink, Our Chief Executive Officer, Brian Leary, Our Chief operating Officer, and Brendan Baker, Our Chief Financial Officer for your convenience today's prepared remarks have been posted on the web.

Hannah True: 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 supplementary, they're both available on the investor 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 materials include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.

Johan: 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.

Johan: On todays 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.

Hannah 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, Hannah. Good morning, everyone.

Johan: 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 statements.

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

Theodore J. Klinck: Thank you Panna and good morning, everyone.

Theodore J. Klinck: We had an excellent quarter, executing on our key priorities and delivering solid financial results. First, we signed 922,000 square feet of second-gen leases, including over 400,000 square feet of new leases and 36,000 square feet of net expansions. This volume of work will benefit us in future periods as the new leases commence. Second, we find 157,000 square feet of first-gen leases in our development pipeline. We continue to see solid interest in these best-in-class projects, which will provide approximately $40 million of incremental NOI upon stabilization and be a significant growth driver for our cash flows.

Theodore J. Klinck: Had an excellent quarter executing on our key priorities in delivering solid financial results.

Theodore J. Klinck: First we signed 922000 square feet of second Gen leases, including over 400000 square feet of new leases.

Theodore J. Klinck: 36000 square feet of net expansions.

Theodore J. Klinck: This volume of work will benefit us in future periods as the new leases commence.

Second we signed 157000 square feet of first Gen leases in our development pipeline.

Theodore J. Klinck: We continue to see solid interest in these best in class projects, which will provide approximately $40 million of incremental NOI upon stabilization and be a significant growth driver for our cash flows.

Theodore J. Klinck: Third we delivered four more craft, an 18000 square foot $12 million build to suit that we developed and are more cross property in the South Park Bvd of Charlotte.

Theodore J. Klinck: Third, we delivered four Moorcrofts, an 18,000-square-foot, $12 million build-to-suit that we developed at our Moorcroft property in the South Park BBD of Charlotte. As you may recall, this creative office development is situated on a surface parking lot with zero basis.

Theodore J. Klinck: As you May recall this creative office development situated on the surface parking lot with zero basis.

Theodore J. Klinck: While 4 Moorcroft is one of our smaller developments, it demonstrates our resourcefulness in cultivating and generating attractive, risk-adjusted returns for our shareholders. Finally, we sold nearly 80 million of non-core properties in Raleigh, including over 60 million that closed early in the second quarter. These sales improve our portfolio quality, increase our long-term cash flow growth, and further strengthen our liquidity and already strong balance sheet. We expect our solid leasing momentum to continue as our markets generate outsized population and job growth, given their high quality of life and business-friendly environment. Simply put, our markets and our BBDs are where people and companies want to live, work, and play. This is why our portfolios outperform the national average. Our markets and our sub-markets.

Theodore J. Klinck: While for more craft is one of our smaller developments that demonstrates our resourcefulness and cultivating and generating attractive risk adjusted returns for our shareholders.

Theodore J. Klinck: Finally, we sold nearly $80 million of noncore properties and Raleigh.

Theodore J. Klinck: Leading over $60 million of closed early in the second quarter.

Theodore J. Klinck: These sales improve our portfolio quality increase our long term cash flow growth and further strengthen our liquidity and already strong balance sheet.

Theodore J. Klinck: We expect our solid leasing momentum to continue as our markets generate outsized population and job growth given their high quality of life and business friendly environment.

Theodore J. Klinck: Simply put our markets and our Bvd's aware people and companies want to live work and play.

Theodore J. Klinck: This is why our portfolio has outperformed the national average our markets and our Submarkets.

Theodore J. Klinck: All because customers and prospects are attracted to our commute-worthy building. Plus, being a long-term landlord with a strong balance sheet that can fund tenant improvements and leasing commissions and care for our best-in-class properties is proving to be a clear competitive advantage for us. Contrary to popular opinion, we're seeing strong demand across our portfolio, whether they be brand-new trophy assets or well-located second-gen properties, and whether they be suburban or urban. We believe financially capable landlords who provide value to customers and prospects will see healthy demand across a wide variety of price points. Turning to our quarterly results, we delivered FFO of 89 cents per share and same property cash NOI growth of positive 0.3%.

Theodore J. Klinck: All because customers and prospects are attracted to our commute worthy buildings.

Theodore J. Klinck: Plus being a long term landlord with a strong balance sheet that can fund tenant improvements and leasing commissions and care for our best in class properties is proving to be a clear competitive advantage for us.

Theodore J. Klinck: Contrary to popular opinion, we're seeing strong demand across our portfolio.

Theodore J. Klinck: Whether they would be brand new trophy assets are well located second gen properties and whether they'd be suburban.

Theodore J. Klinck: Our urban.

Theodore J. Klinck: We believe financially capable landlords, who provide value to customers and prospects will see healthy demand across a wide variety of price points.

Theodore J. Klinck: Turning to our quarterly results, we delivered <unk> 89 per share and same property cash NOI growth of positive 3%.

Theodore J. Klinck: As expected our occupancy dipped modestly to 88, 5%.

Theodore J. Klinck: As expected, our occupancy dipped modestly to 88.5%. Our 2024 FFO outlook is a penny and a half lower at the midpoint due to higher than expected interest rates and the dilutive impact of non-core asset sales already completed, neither of which were factored into our initial outlook.

Theodore J. Klinck: Our 2024 F O outlook is a penny and a half lower at the midpoint due to higher than expected interest rates and the dilutive impact of noncore asset sales already completed.

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

Theodore J. Klinck: These items were partially offset by higher projected NOI.

Theodore J. Klinck: These items are partially offset by higher projected NOI. The strong leasing start to the year modestly helps 2024, but most of the new leasing will drive upside in 2025 and beyond. We've also had a successful start to the year of non-court asset sales, and we're prepping additional properties for potential dispositions. We now expect to sell up to an additional $150 million during the remainder of the year.

Theodore J. Klinck: The strong leasing start to the year modestly helps 2024, but most of the new leasing will drive upside in 2025 and beyond.

Theodore J. Klinck: We've also had a successful start to the year with noncore asset sales and we're prepping additional properties for potential disposition.

Theodore J. Klinck: We now expect to sell up to an additional $150 million during the remainder of the year.

Theodore J. Klinck: The volume and timing of dispositions will depend on how conditions are in the investment sales market.

Theodore J. Klinck: The volume and timing of dispositions will depend on how conditions are in the investment sales market, but we've been encouraged by the response we've seen in recent quarters to our marketing efforts and the modest improvement in the capital markets for prospective buyers. While we don't have any acquisitions included in our 2024 outlook, we continue to build the foundation for future investment opportunities. Similar to the first few years coming out of the global financial crisis, we believe compelling investment opportunities will arise. But these will take time to play out.

Theodore J. Klinck: But we've been encouraged by the response, we've seen in recent quarters to our marketing efforts and the modest improvement in the capital markets for prospective buyers.

Theodore J. Klinck: While we don't have any acquisitions included in our 2024 outlook, we continue to build the foundation for future investment opportunities.

Theodore J. Klinck: Similar to the first few years coming out of the global financial crisis, we believe compelling investment opportunities will arise.

Theodore J. Klinck: But these will take time to play out.

Theodore J. Klinck: We're comfortable being patient as we continue to have conversations with owners and lenders of wishlist properties in our markets.

Theodore J. Klinck: We're comfortable being patient as we continue to have conversations with owners and lenders of wish list properties in our market. Our development pipeline is now $506 million following the delivery of the 100% leased 4 Moorcroft Building in Charlotte. With 157,000 square feet of first-gen leases signed during the quarter, our pipeline is now 41% leased. A big chunk of the activity was at our 642,000 square foot, $460 million, 23 Springs project in uptown Dallas that we were developing in a 50-50 joint venture with Granite. 23 Springs is now 54% pre-leased, a year prior to scheduled completion, and four years before estimated stabilization.

Our development pipeline is now $506 million following the delivery of the 100% leased for more cross building in Charlotte.

Theodore J. Klinck: With 157000 square feet of first Gen leases signed during the quarter. Our pipeline is now 41% leased.

Theodore J. Klinck: A big chunk of the activity was that our 642000 square foot $460 million 23 Springs project in Uptown Dallas that we're developing in a 50 50 joint venture with granite.

Theodore J. Klinck: 'twenty three springs is now 54% pre leased a year prior to scheduled completion and four years before the estimated stabilization.

The largest lease signed was a current law firm customer at our 98% occupied Mckinney <unk> olive property, just a couple of blocks away who needs to expand by nearly 50%.

Theodore J. Klinck: The largest lease signed was a current law firm customer at our 98% occupied McKinney and Olive property, just a couple blocks away, who needs to expand by nearly 50%. Given we couldn't accommodate their growth in McKinney and Owens, we were able to accommodate their growth at 23 Springs, and we already had excellent activity to backfill their space at McKinney and Olive more than two years before their scheduled move to 23 Springs. We made modest progress at Granite Park 6 in Dallas and Glen Lake 3 in Raleigh.

Theodore J. Klinck: Given we couldnt accommodate the growth in Mckinney <unk> olive we were able to accommodate the growth of 23 Springs.

Theodore J. Klinck: We're already <unk>.

Theodore J. Klinck: Excellent activity to backfill their space in Mckinney.

Theodore J. Klinck: More than two years before their scheduled move to 'twenty three springs.

Theodore J. Klinck: We made modest wasting progress, which granted park six in Dallas and Glenn like three in Raleigh.

Theodore J. Klinck: Both of these developments were delivered late last year and are projected to stabilize in 2026. These buildings are best in class in their respective VBDs, and prospect activity is accelerating. We're confident in the long-term outlook and expect these developments to drive solid cash flow growth for us in future years. Midtown East in Tampa, our 143,000-square-foot, $83 million project that we're developing in a 50-50 joint venture with Bromley and West Shore BBD, is seeing strong interest from prospects, given we're the only office project currently under construction in the entire market. We were 16 percent pre-leased and are very encouraged We don't expect to announce any new development projects during the year. Obviously, this isn't unique to Highwoods. It's very difficult for new starts to pencil in the current environment.

Theodore J. Klinck: Both of these developments delivered late last year and are projected to stabilize in 2026.

Theodore J. Klinck: These buildings are best in class in their respective BB days and prospect activity is accelerating.

Theodore J. Klinck: We're confident in long term outlook expect these developments to drive solid cash flow growth for us in future years.

Theodore J. Klinck: Midtown East and Tampa are 143000 square foot $83 million project that we're developing in a 50 50 joint venture with Bromley in West Shore Bvd is.

Theodore J. Klinck: We are seeing strong interest from prospects, given where the only office project currently under construction and the entire market.

Theodore J. Klinck: We're 16% pre leased and were very encouraged by the strong interest more than two years before scheduled stabilization.

Theodore J. Klinck: We don't expect to announce any new development projects during the year.

Theodore J. Klinck: Obviously this isn't unique to highwood, it's very difficult for new starts to pencil in the current environment.

Theodore J. Klinck: We're not seeing meaningful reductions in hard costs and interest rates continued to be elevated.

Brian M. Leary: We're not seeing meaningful reductions in hard costs, and interest rates continue to be elevated. Plus, for other developers who are capital constrained, securing capital for new office construction is very challenging. As a result, new starts have plummeted, and with the current development pipelines that will largely be delivered across our markets over the next few quarters. The lack of new supply in future periods will play to our advantage as users seek high-quality properties from landlords with strong financial resources.

Theodore J. Klinck: Plus for other developers, who are capital constrained securing capital for new office construction is very challenging.

Theodore J. Klinck: As a result, new starts have plummeted and.

Theodore J. Klinck: And with the current development pipelines that will largely be delivered across our markets over the next few quarters. The lack of new supply in future periods, we will play to our advantage as users seek high quality properties from landlords with strong financial resources.

Theodore J. Klinck: In conclusion as we have for the past few years, we acknowledge the headwinds in the office sector.

Brian M. Leary: In conclusion, as we have for the past few years, we acknowledge the headwinds in the office sector, yet we're bullish about the future for Highwoods. First, our portfolio has never been better, and it will continue to improve as we sell additional non-core properties and deliver our $500 million development pipeline. Second, we have significant organic growth potential within our operating portfolio, where we've already leased some of our existing vacancy and have solid interest in expected future vacancy.

Theodore J. Klinck: We're bullish about the future for Highwood <unk>.

Theodore J. Klinck: First our portfolio has never been better and it will continue to improve as we sell additional non core properties and deliver our $500 million development pipeline.

Theodore J. Klinck: Second we have significant organic growth potential within our operating portfolio, where we've already leased some of our existing vacancy and have solid interest unexpected future vacancy.

Theodore J. Klinck: Third our balance sheet is in excellent shape and will enable us to capitalize on future growth opportunities.

Brian M. Leary: Third, her balance sheet is in excellent shape and will enable us to capitalize on future growth opportunities. And finally, even with higher interest rates, our underlying cash flows remain strong, which allows us to keep investing heavily in capital to generate higher returns on our existing portfolio. Brian?

Theodore J. Klinck: And finally, even with higher interest rates, our underlying cash flows remained strong which allows us to keep investing <unk> capital to generate higher returns on our existing portfolio.

Theodore J. Klinck: Ryan.

Brian M. Leary: Thank you, Ted, and good morning, all. As we mentioned on last quarter's call, our leasing teams got off to a strong start in 2024. We maintained our positive momentum through the end of the first quarter, signed 97 deals, and exceeded our five-quarter average with 922,000 square feet of space signed. New leasing volume of 422,000 square feet was the second highest quarterly total since 2014. Average term was also strong at nearly seven years, one year longer than our prior five-quarter average.

Ryan: Thank you Ted and good morning, all as.

Ryan: As we mentioned on last quarter's call our leasing teams got off to a strong start in 2024.

Ryan: We maintained our positive momentum through the end of the first quarter.

Ryan: Find 97 deals and exceeded our five quarter average with 922000 square feet signed.

Ryan: New leasing volume of 422000 square feet was the second highest quarterly total since 2014.

Ryan: Average term was also strong at nearly seven years, one year longer than our prior five quarter average Tampa, Atlanta, and Raleigh signed nearly three fourths of this quarters total volume with average terms of seven and a half years.

Brian M. Leary: Tampa, Atlanta, and Raleigh sign nearly three-fourths of this quarter's total volume with average terms of seven and a half years. Expansions outpace contractions 2 to 1, and while leased economics reflect a highly competitive market, we will prioritize occupancy as needed over pushing rental rates to lean on our strengths as a long-term owner while strengthening our long-term cash flow. In addition, we are seeing strong activity across our $500 million development pipeline. As Ted mentioned, we signed 150,000 square feet of first generation leasing, including 129,000 square feet at 23 Springs, our JV development in Uptown Dallas. The 129,000 square feet of pre-leasing at 23 Springs follows the 105,000 square foot lease we announced last quarter.

Ryan: Expansion outpaced contractions two to one and.

Ryan: And while lease economics reflect a highly competitive market.

Ryan: We will prioritize occupancy as needed over pushing rental rates to lean on our strengths as a long term owner, while strengthening our long term cash flows.

Ryan: In addition, we are seeing strong activity across our $500 million development pipeline as.

Ryan: As Ted mentioned, we signed 150000 square feet of first generation leases, including 129000 square feet at 23 Springs, our JV development in Uptown Dallas.

Ryan: The 129000 square feet of pre leasing at 'twenty three springs follows the 105000 square foot lease we announced last quarter.

Brian M. Leary: 23 Springs is now 54% pre-leased, one year before completion, and four years before our estimated stabilization in the first quarter of 2028. The quality of our portfolio, our sponsorship, and the commute-worthy, lifestyle office experience we provide our customers is giving us a clear edge in today's leasing environment. We're seeing strong demand at various price points across our portfolio. As demonstrated by the strong leasing volume in our development pipeline, the top of the market is doing well.

23 Springs is now 54% pre leased.

Ryan: Year before completion and four years before our estimated stabilization in the first quarter of 2028.

The quality of our portfolio our sponsorship in the commute worthy lifestyle office experience, we provide our customers is giving us a clear edge in today's leasing environment.

Ryan: We're seeing strong demand at various price points across our portfolio.

Ryan: As demonstrated by strong leasing volume in our development pipeline.

Ryan: The top of the market is doing well.

Brian M. Leary: But we continue to see the most demand for our well-located second-gen assets. This is because a large segment of customers and prospects prioritize a premier office experience at rents that are more affordable than a trophy price point. Moving to our markets, Tampa recorded the most volume in the quarter with 267,000 square feet signed.

Ryan: But we continue to see the most demand for our well located second Gen assets.

Ryan: This is because a large segment of customers and prospects prioritize Premier office experience at rents that are more affordable than a trophy price point.

Ryan: Moving to our markets Tampa recorded the most volume in the quarter with 267000 square feet signed.

Brian M. Leary: Our 16% pre-leased Midtown East development is the only Class A office development under construction in Tampa and is on time and on budget for our Q1 2025 delivery. Solid Inbound Interest continues as the building advances toward completion. According to Cushman & Wakefield, Midtown East West Shore BBD was the most active sub-market in Tampa during the quarter, capturing nearly one-third of all leasing activity. Furthermore, CBRE is currently tracking several large users in the market and over 2.6 million square feet of demand.

Ryan: Our 16% pre leased Midtown East development.

Ryan: The only class a office development under construction in Tampa and is on time and on budget for our Q1 2025 delivery.

Ryan: Solid inbound interest continues as they are building advances toward completion.

Ryan: According to Cushman, and Wakefield Midtown East West shore Bvd, whereas the most active submarket in Tampa during the quarter, capturing nearly one third of all leasing activity further.

Ryan: <unk> is currently tracking several large users in the market and over $2 6 million square feet of demand.

Brian M. Leary: We leased a lot of our vacancy earlier this year at Tampa Bay Park, and we're now working to fill pockets of vacancy at Meridian, where we have solid traction. Moving to Atlanta, the MSA recently passed Philadelphia and Washington, D.C. as the nation's sixth-largest and the second-largest metropolitan area on the East Coast, per the latest population estimates from the U.S. Census Bureau.

Ryan: We leased a lot of our vacancy earlier this year at Tampa Bay Park, and we're now working to fill pockets of vacancy at Meridian, where we have solid traction.

Ryan: Moving to Atlanta, the MSA recently passed Philadelphia, and Washington D C. As the nations sixth largest in the second largest metropolitan area on the East coast per the latest population estimates from the U S Census Bureau.

Brian M. Leary: Our Atlanta team signed 199,000 square feet for the quarter, of which 160,000 was new. This represents the greatest share of new leasing across the portfolio. Further north in Raleigh, which was recently ranked number two in the Milken Institute's annual Best Performing Cities Report, our team signed 201,000 square feet in the quarter. We averaged close to 8 years of lease terms, and over half of this leasing activity was new. Raleigh is joined by Nashville, Dallas, and Charlotte on Milken's Top 10 Best Performing Cities list.

Ryan: Our Atlanta team signed 199000 square feet for the quarter.

Ryan: Of which 160000 was new.

Ryan: This represents the greatest share of new leasing across the portfolio further north in Raleigh, which was recently ranked number two in the Milken Institute's annual best performing cities report.

Ryan: Our team signed 201000 square feet in the quarter.

Ryan: We average close to eight years of lease term and over half of this leasing activity was new.

Ryan: Raleigh is joined by Nashville, Dallas, and Charlotte and milk and as top 10, best performing cities list.

Brian M. Leary: In summary, our leasing pipeline is healthy, and we are pleased by the flow of inbound proposal and tour requests across our portfolio. We believe this is emblematic of our simple and straightforward strategy of creating commute-worthy experiences in the Sunbelt's best business districts. Brendan?

Ryan: In summary, our leasing pipeline is healthy and we are pleased by the flow of inbound proposal and tour request across our portfolio. We believe this is emblematic of our simple and straightforward strategy of creating commute worthy experiences in the sunbelt best business districts Brendan.

Brendan Maiorana: Thanks, Brian in the fourth quarter, we delivered net income of $26 $1 million or <unk> 25 per share and <unk> of $96 million or <unk> 89 per share there were no unusual items in the quarter. We are pleased with the quarter, but results, which demonstrate the resiliency of our operations.

Brendan Maiorana: Thanks, Brian. In the fourth quarter, we delivered net income of $26.1 million, or $0.25 per share, and FFO of $96 million, or $0.89 per share. There were no unusual items in the quarter.

Brendan Maiorana: We are pleased with the quarterly results, which demonstrate the resiliency of our operations and continued strong cash flows. Rolling forward from the fourth quarter and excluding the $0.08 per share of unusual items in Q4, FFO per share was $0.02 lower in the first quarter. Higher G&A, which we incur every year during the first quarter due to the expensing of equity grants for certain employees, and the full quarter impact of November's bond issuance, reduced FFO by $0.04 per share.

Brendan Maiorana: And continued strong cash flows.

Brendan Maiorana: Rolling forward from the fourth quarter and excluding the <unk> <unk> per share of unusual items in Q4 <unk> per share was <unk> <unk> lower in the first quarter higher G&A, which we incur every year during the first quarter due to the expensing of equity grants for certain employees and the full quarter impact of novembers.

Brendan Maiorana: Bond issuance reduced <unk> by <unk> <unk> per share. These headwinds were partially offset by <unk> <unk> per share of higher NOI, which net to the <unk> sequential reduction.

Brendan Maiorana: These headwinds were partially offset by $0.02 per share of higher NOI, which nets to the $0.02 sequential reduction. Our balance sheet remains in excellent shape. At March 31st, we had $850 million of available liquidity, which has increased to $915 million following the non-core dispositions we closed in early April. We have a little over $200 million left to fund on our development pipeline and no consolidated debt maturities until May of 2026. We do have one mortgage that matures in the third quarter of this year at our unconsolidated McKinney & Olive joint venture.

Brendan Maiorana: Our balance sheet remains in excellent shape at March 31, we had $850 million of available liquidity, which has increased to $915 million. Following the noncore dispositions we closed in early April.

Brendan Maiorana: We have a little over $200 million left to fund on our development pipeline and no consolidated debt maturities until may of 2026.

Brendan Maiorana: We do have one mortgage that matures in the third quarter of this year at our unconsolidated Mckinney <unk> olive joint venture.

Brendan Maiorana: Low leveraged loan and we're reviewing financing options with granite properties our partner.

Brendan Maiorana: We may ultimately decide to jointly repay this loan upon maturity and seek longer term financing when the lending environment is more attractive.

Brendan Maiorana: This is a low-leveraged loan, and we're reviewing financing options with Granite Properties, our partner. We may ultimately decide to jointly repay this loan upon maturity and seek longer-term financing when the lending environment is more attractive. Given our ample liquidity, we have many options available. This also demonstrates the strategic value of having such a financially capable joint venture partner as Granite. As Ted mentioned, we have updated our 2024 FFO outlook to $3.46 to $3.61 per share, which implies a one and a half cent reduction at the midpoint.

Brendan Maiorana: Given our ample liquidity, we have many options available.

Brendan Maiorana: This also demonstrates the strategic value of having such a financially capable joint venture partner and granted.

Brendan Maiorana: As Ted mentioned, we have updated our 2024 <unk> outlook to $3 46 to $3 61 per share, which implies a one 5% reduction at the midpoint that reduction is driven by the <unk> <unk> dilutive impact from the asset sales completed since our outlook was provided in February.

Brendan Maiorana: And higher than anticipated interest rates for the remainder of 2024.

Brendan Maiorana: The reduction is driven by the three cent dilutive impact from the asset sales completed since our outlook was provided in February and higher than anticipated interest rates for the remainder of 2024, partially offset by 1.5 cents of higher anticipated NOI. It's still early in the year, and therefore, our range remains wide with several variables, most around projected property tax savings, which aren't assured yet. We're pleased with the non-core property sales completed thus far, although modestly dilutive to near-term FFO.

Brendan Maiorana: Partially offset by one and a half cents of higher anticipated NOI.

Brendan Maiorana: Still early in the year and therefore, our range remains wide with several variables most around projected property tax savings, which arent assured yet.

Brendan Maiorana: We're pleased with that non core property sales completed thus far while modestly dilutive to near term <unk> as we have long stated our capital recycling program has been accretive to our cash flows while also improving our long term growth rate.

Brendan Maiorana: We've increased the midpoint of our same property cash NOI outlook and we're at the high end of our total dispositions to $230 million, including the $80 million. We've closed so far all other items in our outlook remain unchanged.

Brendan Maiorana: As we have long stated, our capital recycling program has been accretive to our cash flows while also improving our long-term growth rate. We've increased the midpoint of our same property cash NOI outlook and moved the high end of our total dispositions to $230 million, including the $80 million we've closed so far. All other items in our outlook remain unchanged.

Brendan Maiorana: As Ted and Brian mentioned, we had a strong leasing quarter, especially new leasing volume many of the new leases signed in the quarter won't commence until late this year or next year, and therefore will not have a meaningful financial impact on 2024 results.

Brendan Maiorana: This volume of work will obviously bolster our results in future years as you know we try to be as open and transparent as possible with our stakeholders and we stated for quite some time that we expect occupancy will trough in the first half of next year. We still expect this to be the case, but if we can continue to post strong lease.

Brendan Maiorana: As Ted and Brian mentioned, we had a strong leasing quarter, especially new leasing volume. Many of the new leases signed in the quarter won't commence until late this year or next year and therefore will not have a meaningful financial impact on 2024 results. This volume of work will obviously bolster our results in future years.

Brendan Maiorana: <unk> volumes, we believe our trough occupancy level will be higher than our original expectations and our recovery will be faster.

Brendan Maiorana: As you know, we try to be as open and transparent as possible with our stakeholders, and we've stated for quite some time that we expect occupancy to trough in the first half of next year. We still expect this to be the case, but if we can continue to post strong leasing volumes, we believe our trough occupancy level will be higher than our original expectations and our recovery will be faster. You may have seen in our supplemental package that we have made some adjustments to how we present property-level operational information.

Brendan Maiorana: You may have seen in our supplemental package that we have made some adjustments to how we present property level operational information starting with this quarter and going forward. We are now including in service properties owned by consolidated and unconsolidated joint ventures at our share we are doing.

Same thing with respect to the presentation of our same property operational results and the supplemental.

Brendan Maiorana: For those of you who would rather see same property results on a consolidated basis only all of the ingredients are itemized in the same property reconciliation table in the back of the earnings release. These.

Brendan Maiorana: Starting this quarter and going forward, we are now including in-service properties owned by consolidated and unconsolidated joint ventures at our share. We are doing the same thing with respect to the presentation of our same property operational results in the supplemental. For those of you who would rather see same-property results on a consolidated basis only, all of the ingredients are itemized in the same-property reconciliation table in the back of the earnings release.

Brendan Maiorana: These changes have a relatively modest impact on our property level metrics this quarter as JV today comprise less than 3% of our business.

Brendan Maiorana: But we will increase to around 8% as our development properties are placed in service.

Brendan Maiorana: To wrap up we're very encouraged about the future for <unk>, our high quality Sunbelt portfolio is located in the Bvd's, where talent wants to be which is clearly demonstrated by our performance. This quarter, we have strong embedded growth potential within our operating portfolio and approximately $40 million of few.

Operator: These changes have had a relatively modest impact on our property level metrics this quarter as JVs today comprise less than 3% of our business, but they will increase to around 8% as our development properties are placed in service. To wrap up, we're very encouraged about the future for Highwoods. Our high-quality Sunbelt portfolio is located in the BBDs where talent wants to be, which is clearly demonstrated by our performance this quarter. We have strong embedded growth potential within our operating portfolio and approximately $40 million of future NOI as our development pipeline stabilizes. Our balance sheet is in excellent shape, and our cash flows continue to be robust.

Brendan Maiorana: <unk> NOI as our development pipeline stabilizes our balance sheet is in excellent shape and our cash flows continue to be resilient. Operator, we are now ready for questions.

Speaker Change: Thank you if you would like to ask a question. Please press star followed by one when you're with Telus.

Speaker Change: Thank you Pat now.

Speaker Change: If you change your mind anytime Keith Wester. Thank you.

Speaker Change: We have our first question from the phone.

Unknown Attendee: <unk> from <unk>.

Bank of America.

Speaker Change: Your line is open.

Speaker Change: Good morning, great to see the pickup in leasing this quarter I'd like to start with some questions around guidance as you clearly laid out the puts and takes for bringing the top end.

Operator: Operator, we are now ready for questions. Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind at any time, please press star, then 2. We have our first question from the phone lines from Camille Bonnel of Bank of America. Good morning.

Speaker Change: <unk> can you explain the drivers behind raising the low end of your same store guide and how confident are you in the bottom range here. If there is a pullback in decision making.

Brendan: Camille Hi, it's Brendan.

Camille Bonnel: Great to see the pickup in leasing this quarter. I'd like to start with some questions around guidance. As you clearly laid out the puts and takes for bringing the top end of FFO down, can you explain the drivers behind raising the low end of your same store guide? And how confident are you in the bottom range here if there's a pullback in decision making? Camille.

Brendan: To start.

Brendan: So I think in terms of the components of the driver of the higher NOI outlook that we talked about both in terms of the same property growth.

Brendan: And what we said is just overall better NOI with respect to the <unk> outlook.

Brendan: I would say that it's roughly evenly split between.

Brendan Maiorana: Hi, it's Brendan. I'll start. So I think in terms of the components of the driver of the higher NOI outlook that we talked about both in terms of the same property growth and what we said was just overall better NOI with respect to the FFO outlook, I would say that it's roughly evenly split between better revenue and some expense. And that better revenue is driven by probably what I would characterize as a modestly higher average occupancy. We didn't change the average occupancy range, but it is modestly higher overall. So it's a combination of the top line and average occupancy. And then, in terms of how much.

Brendan: Better revenue.

Brendan: Some expense savings.

Brendan: So that better revenue is driven by probably what I would characterize as modestly higher average occupancy we didn't change the average occupancy range, but it is modestly higher overall, so it's a combination of top line and expense savings.

Brendan: And then in terms of.

Brendan: How much.

Brendan: <unk> leasing is in the forecast we still have spec leasing that is there I think if things really slow down in the for the remainder of the year.

Brendan: It probably doesn't have a very large impact in terms of the financial performance for 2024 as most of the spec leasing that we have slated to come in this year would be later in the year and therefore not have a big impact on 24 results, but obviously, that's going to carry more impactful.

Brendan Maiorana: Speck leasing is in the forecast. We still have speck leasing that is there. I think if things really slow down for the remainder of the year, it probably doesn't have a very large impact in terms of the financial performance for 2024, as most of the speck leasing that we have slated to come in this year would be later in the year and therefore not have a big impact on 2024 results, to 2025 and future years, but I think we feel good about kind of where leasing activity has been through the first almost four months of the year and are optimistic that that will continue as we go forward.

Brendan: Two 2025 in future years, but I think we feel good about kind of where leasing activity has been through the first.

Brendan: Four months of the year and are optimistic that that will continue as we go forward.

Brendan: To clarify is exactly the same as new leasing activity.

Brendan Maiorana: Can you clarify, is the spec leasing the same as new leasing activity that you report? We have, within our spec outlook for the business plan for the year, a combination of that between both new and renewal. So it's in with both. Got it.

Brendan: Right.

Brendan: We have.

Brendan: Within our spec outlook for the business plan for the year and there is a combination of that between both new and renewal.

Brendan: So it's with.

Camille Bonnel: Okay. Well, if we look back, it seems like you were able to improve your occupancy when new leasing volumes were above 1 million square feet. So, Are you able to expand a bit more on that specific assumption baked into guidance this year, and do you think you can sustain the pace of new leasing throughout the year, or was the first quarter how did that track compared to your budget? Yeah, maybe I'll start and then I'll let Ted and Brian provide more color on the specifics. But I certainly think the new leasing volume of 423,000 square feet is not something we expect to continue. That was, I think, the second highest quarter that we've had over the past 10 years.

Brendan: With both.

Speaker Change: Got it okay, well, if we look back it seems like you were able to improve your occupancy win new leasing volumes were above 1 million square feet. So.

Speaker Change: Are you able to expand a bit more on that specific.

Speaker Change: Assumption baked into guidance this year and do you think you can sustain the pace.

Speaker Change: New leasing throughout the year or was the first quarter, how did that track.

Speaker Change: Compared to your budget.

Speaker Change: Yes, maybe I'll I'll start and then I'll, let Brian provide more color on specifics, but I think certainly the new leasing volume of 423000 square feet. We don't expect that to continue that was I think the second highest quarter that we've had over the past 10 years, so that certainly.

Brendan Maiorana: So that's certainly above expectations, and volumes are going to bounce from quarter to quarter. But I think if we could average around 300,000 square feet of new per quarter for the year, so call it 1.2 million square feet of new during the year, I think that would place us in a good position to kind of build occupancy as we get through some of the large known expirations and what I mentioned in the prepared remarks.

Brian M. Leary: Above expectations and the volumes are going to bounce from quarter to quarter, but I think if we could average around 300000 square feet of new.

Brian M. Leary: Per quarter for the year, so call it $1 2 million square feet of new during the year I think that would place us in a good position to kind of build occupancy.

Brian M. Leary: As we get through some of the large.

<unk> explorations and what we what I mentioned in the prepared remarks, we certainly expect to trough occupancy early in 2025, and then build from there, but I think if we're able to sustain good new leasing volume and manage reasonable levels of renewals and I think that puts us in position.

Brendan Maiorana: We certainly expect to trough occupancy early in 2025 and then build from there. But I think if we're able to sustain good new leasing volume and manage reasonable levels of renewals, then I think that puts us in position to build kind of from the base. And, as we stated earlier, trough at a higher level than what we previously expected and then recover faster. Thank you.

Brian M. Leary: To build kind of from the base and as we stated earlier trough at a higher level than what we previously expected and then recover faster.

Brian M. Leary: Okay.

Thank you.

Speaker Change: Oh, okay.

Speaker Change: Just one final question.

Camille Bonnel: Just one final question. If we were to dive deeper into your portfolio, are you seeing any areas where vacancy has been concentrated, whether that be by location, like suburban, urban infill, or lease size? Thank you. Hi Camille, it's Ted.

Speaker Change: If we were to dive deeper into your portfolio are you seeing any areas, where vacancy has been concentrated whether that be in.

Speaker Change: By location like South Atlanta, urban infill or Lisa.

Speaker Change: Thank you.

Speaker Change: Hey, Camille Ted.

Theodore J. Klinck: You know, I don't think so. I think we've seen pretty good demand across the portfolio. Our biggest vacancies as a company are the well-known Tiviti move out. That building is still largely vacant, so that's 260 or so thousand feet.

Camille: I don't think so I think we've seen pretty good demand across the portfolio our biggest vacancies as a company.

Speaker Change: The well known activity move out that building is still largely vacant so thats 260, or so thousand feet and then the CDC vacated.

Theodore J. Klinck: And then the CDC vacated a building in Atlanta, and that is leased, but it's vacant right now. So combine those two, that's about 100, if I remember right, it's about 130 basis points of occupancy. But other than those two big holes, it's really not concentrated.

Building in Atlanta in that.

Speaker Change: As Vegas leased but its vacant right now so combined those two that's about 100, if I remember is about 130 basis points of occupancy.

Speaker Change: But other than those two big holes, it's really not concentrate anywhere.

Operator: Thanks for taking my question. Your next question comes from Vikram Moultra from New Zealand. Hey, this is Georgi Dinkov on behalf of Vikram.

Speaker Change: Thanks for taking my question.

Speaker Change: Your next question comes from Vikram Malhotra from me Gary.

Speaker Change: Hey, This is George <unk> on for Vikram can you just walk us through any known move outs and the occupancy trajectory in 2024.

Georgi Damyanov Dinkov: Can you just walk us through any known move-outs and the occupancy trajectory in 2024? And maybe I'll take the first part, and Brendan can jump in on the occupancy trajectory. So, look, the known move-outs, you know, we've talked about these for several quarters. I'm going to hit on it just at a high level.

Speaker Change: Yeah, maybe I'll take the first part and Brandon can jump in on the trajectory of the occupancy so what the known move outs.

Speaker Change: We've talked about these for several quarters I'm going to hit it just at a high level.

Theodore J. Klinck: You know, we're seeing some good activity in the Novella space in Atlanta. It's 168,000 square feet. And so we're seeing really good activity there. We're seeing good activity, actually, in Pittsburgh now as we're getting closer to the EQT expiration later this fall. As you know, last quarter we indicated we went direct with one customer, and we've got strong prospects for another 50,000 feet and over 100,000 square feet. Unknown Attendee, Theodore Klinck, Brian Leary, Nicholas Thillman, Michael Griffin, Theodore. We're still a little bit early there, but we're well on our way to the highwattizing plans for the project that will be getting underway really the day they move out.

Brandon: We're seeing some good activity on the novellus space in Atlanta to a 168000 square feet.

Brandon: So we're seeing really good activity there we're seeing good activity actually in Pittsburgh now as we're getting closer to the EQT exploration later this fall.

Brandon: I think last quarter, we indicated we went direct with one customer and we've got strong prospects for another 50000 feet and over 100000 square feet of proposals that are out. So we feel good about the activity. We're getting there we will see where that goes.

National.

Brandon: Bass Berry moves out next February.

Brandon: Still a little bit early there, but were well on our way on the <unk> plans for the project that will begin underway really the daily move out. So we're excited about our plans of their activity little slower there just because we're still 10 months away from from them vacating.

Theodore J. Klinck: So we're excited about our plans there. Activity's a little slower there just because we're still 10 months away from them vacating. And then really, the other big one is the Department of Revenue at the end of this year, 1800 Century Center.

And then really the other big one is the department of revenue at the end of this year.

Brandon: 800 century center, they are the ones consolidating and downsizing to another one of our buildings in that same park.

Theodore J. Klinck: They're the ones consolidating and downsizing to another one of our buildings in that same park. So we're still evaluating our plans for that building, whether it be an office lease-up or potential residential conversion. So we're well underway. We've been analyzing that for a while, and hopefully we'll know more in the next couple months with respect to what our plans are. Georgi, it's Brendan.

Brandon: We're still evaluating our plans for that building and whether it would be.

Brandon: <unk> lease up or potential residential conversion. So we're well under way we have been analyzing that for a while and hopefully we will know more in the next next couple of months with respect to what our plans are with that.

Brandon: In Georgia, It's Brendan just in terms of the trajectory as we move throughout the year. So, we'll probably dip a little bit in Qs two and three so maybe around that average for the year around 88% or so theres, just a little bit of movement within the portfolio. There are some spaces that we're proactively taking.

Brendan Maiorana: Just in terms of the trajectory as we move throughout the year or so, we'll probably dip a little bit in queues two and three, so maybe, you know, around that average for the year, around 88% or so. There's just a little bit of movement within the portfolio. There are some spaces that we're proactively taking back early in the second quarter that we have then backfilled, and we expect to move the new users in by year end.

Brandon: Back early in the second quarter that we have been back filled and expect to move to new users in by year end.

Brandon: And then as we've stated we think year end.

We'll be the low point for us for this year, given what Ted talked about which is principally the EQT exploration.

Brendan Maiorana: And then, as we've stated, we think year end will be the low point for us this year, given what Ted talked about, which is principally the EQT expiration in the fourth quarter. But we do think that we're going to end the year at a higher level than what we had previously expected when we provided our original outlook in February, so we think we're tracking well. And there is just one second question for me.

Brandon: In the fourth quarter, but we do think that we're going to end the year at a higher level than what we had previously expected when we provided our original outlook in February So we think we're tracking well.

But certainly the year end will be should expect to have the low point in terms of occupancy for the year.

Brandon: Yeah.

Brandon: Yes.

Speaker Change: And just a second question for me, we've noticed occupancy decline in Tampa and Orlando quarter over quarter.

Georgi Damyanov Dinkov: We've noticed occupancy declines in Tampa and Orlando, quarter over quarter. Can you just comment on what was the driver and is this a sign of challenges in these specific markets? And I guess, can you just comment on your markets, which one is performing better and which one is kind of lagging behind? Georgi, this is Brian.

Speaker Change: Can you just.

Speaker Change: Comment on what was the driver in this is is this a sign of challenges in these specific markets and I guess can you just comment on your markets, which one are performing better and which one are kind of like lagging behind.

Speaker Change: Okay.

Speaker Change: Jordan This is Brian I'll take a couple of things first you mentioned Orlando and Tampa specifically.

Brian M. Leary: I'll take a couple of things. First, you mentioned Orlando and Tampa specifically. Last quarter, Orlando really hit a high watermark in terms of their occupancy over a great period of time. They're doing a fantastic job. Nothing's under construction in Orlando. They have the best buildings in downtown. So they're doing a good job there. We feel good about the long-term maintenance of occupancy within a bandwidth of the high watermark last Quarter and where they are this year. So I think nothing that really expound upon more with regard to Orlando. Tampa's a dynamic market. We have multiple parks kind of within the West Shore BBD.

Brian M. Leary: Last quarter, Orlando really hit a high watermark in terms of their occupancy over a great period of time. They are doing a fantastic job. There's nothing is under construction in Orlando.

Brian M. Leary: They have the best buildings in downtown so they're doing a good job there we feel good about the long term maintenance of occupancy within a bandwidth of the high watermark last quarter and where they are this year. So I think nothing really expound upon more with regard to Orlando.

Brian M. Leary: Tampa is a dynamic market, we have multiple parks kind of within.

Brian M. Leary: The west shore Bvd, and so youre seeing ebbs and flows across air nothing to highlight anything specifically.

Brian M. Leary: And so you're seeing ebbs and flows across there; nothing to highlight, anything specifically. We're very happy with the movement in Tampa, the folks continuing to grow there. Now, globally, in terms of the other markets, You know, they're all our favorite children, so there's none that are favored.

Brian M. Leary: We're very happy with with the the movement in Tampa, the folks continuing to grow their now globally in terms of the the.

Brian M. Leary: The other markets.

Brian M. Leary: Our favorite children, so theres, none that are.

Brian M. Leary: Favorite, but Nashville.

Brian M. Leary: But look, Nashville continues to be a place people want to be. It posted an overall market positive quarterly absorption last quarter, which stood out nationally for the year 2023. It was, you know, number four in the country for positive absorption.

Brian M. Leary: <unk> to be a place people want to be posted as overall market positive quarterly absorption last quarter, which stood out nationally for the year of 2023. It was four in the country for positive absorption. Some of you may have noticed just yesterday, Larry Ellison was getting interviewed by Bill Frist.

Brian M. Leary: Some of you may have noticed just yesterday, Larry Ellison was interviewed by Bill Frist in Nashville and referenced that Nashville will become Oracle's global headquarters at some point in the future, which supports the story that CBRE put out there that Nashville is in the top five in the country for new headquarters. So Nashville is in a good place. Charlotte, well, in some ways, it's a tale of two cities in some cases.

Brian M. Leary: And Nashville, and referenced that natural will become oracle's global headquarters.

Brian M. Leary: At some point in the future, which supports the story that CBRE put out there that.

Nashville is top five in the country for new headquarters So Nash.

Brian M. Leary: Nashville is and it goes by Charlotte.

Brian M. Leary: In some ways. It's a tale of two cities in some cases, there's a clear delineation and separation between location lineage and landlord in terms of.

Brian M. Leary: Who's winning and who's not in Charlotte.

Brian M. Leary: Sitting here at 96, 2% occupied feel really good about our assets Charlotte continues to grow.

Brian M. Leary: There's a clear delineation and separation between location, lineage, and landlord in terms of who's winning and who's not. In Charlotte, we're sitting here 96.2% occupied, and feel really good about our assets. Charlotte continues to grow, and lots of interesting things are going on. Dallas, you know, Dallas will soon, you know, they say in the next five years pass Chicago in terms of population. It's the fourth largest metro right now, and led the U.S. in 23 population growth.

Brian M. Leary: Sort of interesting.

Brian M. Leary: Interesting things going on there Dallas.

Brian M. Leary: This will soon they say in the next five years pass Chicago in terms of population and so forth.

Brian M. Leary: Metro right now led the U S and 23 population growth, we couldnt be happier with our partnership there and the granite happy with the existing Mckinney and all of the asset in Uptown the leasing momentum at twenty-three springs in the leasing that's picking up and interest in inbounds and tours.

G. P. Six so I think that's sort of kind of gives you a little bit of color of the spectrum of markets and Ive Ted has anything else to add.

Brian M. Leary: We couldn't be happier with our partnership there and, obviously, happy with the existing McKinney and Olive asset in uptown. The leasing momentum at 23 Springs and the leasing that's picking up an interest in inbounds and tours. That sort of gives you a little bit of color on the spectrum of markets. Great. Thank you for taking my questions. Thank you. We now have Blaine Heck from Welfarco on the line.

Speaker Change: Great. Thank you for taking my questions.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: We now have Blaine Heck from Wells Fargo on the line.

Blaine Heck: Ted you mentioned this in your prepared remarks, but recently, we've been hearing a lot about the flight of capital or tenants looking for landlords that are willing and able to fund ti on new leases I guess can you just give a little bit more color on that trend broadly.

Blaine Heck: Maybe comment on how much of the market vacancy might be attributable to space with <unk>.

Blaine Heck: Ted, you mentioned this in your prepared remarks, but recently we've been hearing a lot about the flight to capital, or tenants looking for landlords that are willing and able to fund TIs on new leases. I guess, can you just give a little bit more color on that trend broadly and then maybe comment on how much of the market vacancy might be attributable to space that's owned by a landlord that's unwilling to fund TIs?

Blaine Heck: Owned by a landlord that's unwilling to Thunder.

Blaine Heck: And then lastly.

Blaine Heck: I'm just wondering whether there are any specific instances you can sites, where you think you've won out on a deal because of that ability that you guys had on Ti.

Speaker Change: Sure a lot done.

Speaker Change: <unk>.

Speaker Change: Remind me if I don't hit all parts of that so in general it's exactly what you said where C&I.

Speaker Change: Hi, bifurcation of assets.

Blaine Heck: And then lastly, I'm just wondering whether there are any specific instances you can cite where you think you've won out on a deal because of that ability that you guys have to fund TIs. Sure. A lot to unpack there. Remind me if I don't hit all parts of that.

Speaker Change: And ownership.

Speaker Change: There are some cases, we've heard that landlords are brokers arent showing the space.

Speaker Change: They understand the capital stack, the capital stacks upside down or there's just risk of the building.

Speaker Change: Effectively becomes a zombie type building. So many instances out there one in particular and here in Raleigh, We got a full floor user from a building that was.

Theodore J. Klinck: So, in general, it's exactly what you said. We're seeing a bifurcation of assets and ownership that, you know, there are some cases we've heard that landlords or brokers aren't showing the space because if they understand the capital stack, the capital stack's upside down, or there's just risk in building. [inaudible] we can pay.

Speaker Change: In distress and it was really from a cold call and this is very similar to what all of our our leasing reps are doing it.

Speaker Change: All the buildings that have got maturing debt.

Speaker Change: We're targeting those buildings because of the capital that we can invest in the tis and commissions that we can pay for this was a direct result of a cold call, but we got we got a full floor user user didn't want to stay in the building because they couldnt get enough money to recap to redo their space. So it is a great win for our team and it shows that.

Theodore J. Klinck: So this was a direct result of a cold call that we got. We got a full floor user. The user didn't want to stay in the building because they couldn't get enough money to recapitalize to redo their space.

Theodore J. Klinck: So it was a great win for our team, and it shows that you know just the resourcefulness of our team, and we're seeing that in other markets as well. In terms of the number of the amount of vacancy it's concentrated, it's really the vacancies concentrated in B&C buildings in general. It's concentrated in less desirable sub-markets, and then it's concentrated in the buildings that have been in really bad distress for the last call it two or three years. As we all know, the lenders have been kicking the can. Lenders don't want to take a lot of these assets back.

Speaker Change: Just the resourcefulness of our team and we're seeing that in other markets as well.

Speaker Change: In terms of the number the amount of vacancy.

Speaker Change: It's concentrated it's really the vacancies concentrated in D&C buildings in general it's concentrated in less desirable Submarkets and then it's concentrated in the buildings that have been a really in distressed for the last call. It two or three years as we all know the lenders have been kicking the can lenders don't want to take a lot of these assets back.

Theodore J. Klinck: A lot of the owners don't have the money or the ability or, in some cases, even the desire to keep the ownership. So those buildings are going to be starved for capital. Occupancy is going to be under pressure. So and those occupancies are declining. So I think those three areas. Did I hit all parts of your question? Yeah, I think so. That's a really helpful color.

Speaker Change: The owners don't have the money or the ability or in some cases, even the desire to keep.

Speaker Change: And the ownership. So those buildings are going to be starved for capital occupancy is going to be under pressure.

Speaker Change: And those occupancies are declining so I think it's those three areas.

Speaker Change: Did I hit all parts of your question.

Speaker Change: Yes, I think so that's really helpful color really appreciate that.

Blaine Heck: I really appreciate that. Just switching gears for the second question, I guess, what how are you thinking about the Pittsburgh portfolio in the near to midterm? Do you think dispositions are still likely off the table in the near term? Are you seeing any kind of signs that the transaction market might be returning there? I guess, are there any of those properties in the potential 150 million in dispositions that you're forecasting for the rest of the year?

Speaker Change: Just switching gears for the second question I guess, how are you thinking about the Pittsburg portfolio that near to mid term you think dispositions are still likely off the table in the near term are you seeing any kind of sign that the transaction market might be returning there I guess are there are there any of those properties and the potential $150 million of.

Speaker Change: Dispositions that you are forecasting for the rest of the year and then just generally maybe how do you think about the balance between waiting for a decent price to exit.

Blaine Heck: And then, just generally, maybe, how do you think about the balance between waiting for a decent price to exit versus maybe selling sooner wherever market prices are, but likely saving some capital needed for the lease up and any renovation or refreshing projects that you might have? Sure.

Speaker Change: Maybe selling sooner wherever market pricing is that likely savings of capital needed for lease up and adding in renovation or refreshing projects that you might have.

Speaker Change: Sure.

Theodore J. Klinck: So with regard to Pittsburgh, that's going to be a tough sell. My gut is, and we don't have our next wave totally identified yet, clearly when we announced we were exiting Pittsburgh in the fall of 2000, [inaudible] Unknown Attendee, Theodore Klinck, Brian Leary, Nicholas Thillman, Michael Griffin, Theodore Klinck, But certainly, it's our desire to get out when the And we are trying to balance, you know, do you sell it now versus waiting.

Speaker Change: With regard to Pittsburgh, that's going to be a tough sell my gut is and we don't have our next wave totally identified yet.

Speaker Change: Clearly when we announced we are exiting Pittsburgh in the fall of 2022.

Speaker Change: Not unlike what we did getting out of Memphis and Greensboro. It took us about three years to get out I think the timing of the capital market's still aren't back in my view.

Speaker Change: Or.

Speaker Change: We've had a lot of success selling small and medium sized asset sort of bite sized transactions that are easier to finance, but to sell a big transaction like a PPG, it's very difficult debt market. Today. So my gut is we're going to just keep focus on blocking and tackling leasing space and wait for the.

Theodore J. Klinck: But I don't think there's a market for that aspect today, in terms of what we do want to sell the next 150. I think it's going to be a lot like what we've sold the last couple years. It's going to be smaller assets that we think have liquidity in the market, and we've been successful selling both value-add and core assets over the last couple of years. And there are local banks, there are high-net-worth individuals who've got relationships that can finance these types of things.

Speaker Change: Capital markets to recover so I wouldn't expect Pittsburgh to be in that next 150, but certainly its our desire to get out when the timing is right and we are trying to balance do you sell it now versus waiting, but I don't think theres a market for that asset today. So in terms of what we do want to sell the next 150 I think it is going.

Speaker Change: B a lot like what we sold the last couple of years, it's going to be smaller assets that we think have liquidity in the market and we've been successful selling both value add and core assets over the last couple of years and there's local banks Theres high net worth individuals got relationships that can finance these type assets.

Blaine Heck: The next 150 are going to be multiple buildings; they're going to look a lot like what we sold. Then we can use those proceeds to plow that back into, you know, the renovation capital and, you know, to use. Great. Thanks so much, Ted.

Speaker Change: What is the next 150 is going to be multiple buildings theyre going to look a lot like what we sold the last the last year or two and then we can use those proceeds plough that back into the renovation capital in.

Blaine Heck: Thanks, Blaine. Thank you. Your next question comes from Michael Griffin. Great, thanks. I'm just curious about renewal leasing. What are you seeing in terms of retention rates and whether or not most firms are upsizing, downsizing, or keeping the same space? And is the average lease signed, you know, by size changed at all? Hey, Michael.

Speaker Change: To use throughout the portfolio.

Great. Thanks, so much.

Speaker Change: Thanks Helane.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Michael question Christy.

Speaker Change: Great. Thanks.

Michael: Just curious on the renewal leasing what are you seeing in terms of retention rates and whether or not those firms are upsizing downsizing or keeping the same space and as the average.

Michael: Lease signed by size changed at all.

Speaker Change: Hey, Michael I'll start out and if Brendan O'brien has anything to add.

Michael Anderson Griffin: I'll start out and see if Brendan or Brian has anything to add. Look, our retention ratio for the last couple years has, in fact, gone down, right? But it's not typical what we see in any economic downturn. Certainly, there's been some work from home. So that's hurt.

Speaker Change: Look our retention ratio last couple of years has in fact gone down right, but it is not atypical of what we see in any economic downturn certainly has been some obviously work from home. So that's hurt but just the cyclical downturn as well companies are closing up regional shops are combined in local offices or what have you. So our retention.

Theodore J. Klinck: But then just the cyclical downturn as well; companies are closing up regional shops or combining local offices or what have you. So our retention has, in fact, gone down. But if you look at our overall portfolio, you know, we've had many, many quarters where our expansions are outweighing contractions. I think this quarter we had 10 expansions, five contractions for a net positive 36,000. Expansions were $63,000, less 26,000 square feet. And that's, if you look back just since the beginning of 2023, we've had 55 customers expand and 21 contract over the last five quarters. It's a lot of the smallest.

Speaker Change: Has has in fact gone down, but if you look at our overall portfolio.

Speaker Change: We've had.

Speaker Change: Many many quarters, where our expansions are outweighing contractions I think this quarter, we had 10 expansions five contractions for a net positive 36000 feet.

Speaker Change: Expansions were 63000, less 26000 square feet of contractions and Thats. If you look back just since the beginning of 2023, we've had 55 customers expand 21 contracts over the last five quarters. So it's a lot of the smaller the larger customers are the ones contracting.

Theodore J. Klinck: The larger customers are the ones contracting. Thankfully, our average-sized customers are about 13,000 or 14,000 feet. Those are the customers that, A, are making the decisions. B, they're the ones that are still growing.

Speaker Change: Thankfully our average sized customers about 13 or 14000 feet. Those are the customers that hey, they're making the decisions b. They are the ones that are still growing so we're seeing a lot of expansions and these expansions or maybe 2000 feet 3000 feet and the contractions again.

Theodore J. Klinck: So we're seeing a lot of expansions. And these expansions are maybe 2,000 feet, 3,000 feet. And the contractions, again, the contractions we've had have been a little bit bigger. They might be a floor or half a floor.

Speaker Change: The contractions, we've had have been a little bit bigger it might be a floor or a half a floor, but it's been slow and steady for us.

Theodore J. Klinck: But it's been slow and steady for us. In terms of lease size, again, our bread and butter is at 5,000 to 15,000 feet. Again, that's most of our activity this quarter. We had a couple of larger deals, but in general, our normal is at five to 15, and we're signing a lot of them. Almost 100 again this quarter.

Speaker Change: Expansion of that waiting contractions.

In terms of lease size again, our bread and butter is at 15, 5% to 15000 feet and Thats again Thats most of our activity. This quarter, we had a couple.

Speaker Change: Larger deals, but in general our normal is at 5% to 15, we're signing a lot of them I think we did almost 100 again this quarter. So in and out were cited about 100 a quarter.

Theodore J. Klinck: In and out, we're selling about a hundred. Great. And then I was curious if you could just give some color on the development leasing in Dallas. It seems like Sidley Austin is moving from M&O to 23 Springs. Was that always the plan when you bought the property and then announced when you started the developments, or did that come about relatively recently?

Speaker Change: Great.

Speaker Change: And then I was curious if you could just give some color on the.

Speaker Change: The development leasing in Dallas seemed like Sidley Austin at moving from <unk> to 'twenty three springs was that always the plan. When you bought the property and then you announced when you started the development or did that come about relatively recently and what are you tracking in terms of demand on that space is going to be.

Theodore J. Klinck: And what are you tracking in terms of demand for that space? Is it going to be a single user? Could you multi-tenant that space that they have there? Just maybe some more color around that would be helpful.

Speaker Change: Single user could it be could be multi tenant.

Speaker Change: The space that they have there maybe some more color around that would be helpful.

Speaker Change: Sure certainly when we bought <unk> that was not in the business plan Sidley Austin I think their lease was go into 2028 or so.

Theodore J. Klinck: Sure. Certainly, when we bought M&O, that was not the business plan. Sidley Austin, I think their lease was going until 2028 or so. But as we got into it, their growth needs, we were just thrilled that we were able to accommodate their growth needs. They loved Bikini and Olive and would love to stay, but we couldn't accommodate them.

Speaker Change: But as we got into it their growth needs.

Speaker Change: We're just thrilled that we were able to accommodate their growth needs. They loved Mckinney <unk> olive in who would love to stay but we couldn't accommodate them.

Theodore J. Klinck: The building's full. Everybody seems pleased with the building, so we just weren't able to accommodate them. It is just very fortunate that we have the space down the street. In terms of... The other activity in the building, just our development pipeline in general, you know, obviously, we signed 157,000 square feet in the first quarter. You know, we've got another, I'd call it 125,000 square feet of prospects, strong prospects that we've either agreed to, and we're papering, or we're close to agreeing to.

Speaker Change: Buildings full and.

Speaker Change: Everybody seems seems pleased with 1 billion. So we just we weren't able to accommodate their growth. So it just is very fortunate that we have the space down the street.

Speaker Change: In terms of.

Speaker Change: The other activity in the building.

Speaker Change: Our development pipeline in general.

Speaker Change: Obviously, we signed 157000 square feet in the first quarter, we've got another I would call it 125000 square feet of prospects.

Speaker Change: Strong prospects that we've either green, we're papering or were close to agreeing to.

Theodore J. Klinck: It's throughout our development pipeline of that 125, virtually every one of our Development Projects has a prospect, a strong prospect. So we're looking forward to moving the needle a little bit more there. And then we've got over 800,000 square feet of recent tour activity. That's on top of the 125,000 square feet. [inaudible] Development Pipeline. The activity seems to be... We have the next question from Bob Stevenson. Good morning, guys.

Speaker Change: Throughout our development pipeline of that 125, virtually every one of our.

Speaker Change: Development projects has a prospect strong prospect. So we're looking forward to moving the needle a little bit more there and then we've got over 800000 square feet of recent tour activity. That's on top of the 125000 square feet of strong prospects, so activity seems to be picking up.

Speaker Change: We have a lot of work to do to get those over the goal line and get done, but we couldnt be more thrilled with really the activity certainly we're getting a lot of deals signed in 'twenty three springs, but across our.

Speaker Change: Development pipeline the activity seems to be picking up.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: We have the next question is from Rob Stevenson with Janney.

Robert Chapman Stevenson: Hey, good morning, guys Ted.

Robert Chapman Stevenson: Ted, how much of that up to an additional $150 million of dispositions is somewhat dependent on redeployment opportunities? I mean, would you sell $225 million and just either pay down debt or sit on the cash and fund the development pipeline as needed? Yeah, Peter, I think we would.

Robert Chapman Stevenson: How much of that up to an additional $150 million of dispositions is somewhat dependent on redeployment opportunities I mean would you sell $225 million.

Robert Chapman Stevenson: Just either pay down debt or sit on the cash and fund the development pipeline is needed.

Theodore J. Klinck: Yeah, Peter I think we would.

Theodore J. Klinck: It's not, it's not dependent on redeployment into acquisitions or development. This is just doing our normal cadence and selling like we have before. I'm sorry, yeah, Rob.

Theodore J. Klinck: It's not it's not dependent on to redeploy into acquisitions or development. This is just.

Speaker Change: Our normal cadence and sell them like we have I'm.

Speaker Change: I'm sorry, Rob.

Robert Chapman Stevenson: So we really aren't, it's just identifying assets to create some liquidity to get our dry powder ready to take advantage of opportunities. It's not going to be dependent on us buying. Okay.

Speaker Change: So we really it's not it's just identified assets to create some liquidity to get our dry powder ready to take advantage of opportunities at the time, but it's not going to be dependent on us buying something.

Speaker Change: Okay, and then your commentary about lack of acquisitions is that due to assets. The assets available right now are to the right quality or location or is it mostly the pricing is still too high or some combination what's the thing that sort of making the acquisition environment not advantageous to you right now.

Robert Chapman Stevenson: And then your commentary about the lack of acquisitions, is that due to assets; the assets available right now aren't of the right quality or location? Or is it mostly the pricing is still too high or some combination? What's the thing that's sort of making the acquisition environment not advantageous to you right now? I think it's a combination of all three of those, right?

Speaker Change: I think it's a combination of all three of those right. So the assets that have sold.

Theodore J. Klinck: So the assets that have sold don't meet the quality standards. There are, you know, several out there now, let's say a handful of assets that are sort of going through a pricing exercise, and so we're going to be patient. We're doing a lot of practice underwriting and all that, but it's certainly got to be the quality. Most importantly, it's got to be the location and, certainly, the pricing. We continue to monitor. We're hanging around the hoop.

Speaker Change: Meet the quality there are several out there now, let's say a handful of assets that are sort of going through a pricing exercise and so we're gonna be patient, we're doing a lot of practice underwriting and all that but it's certainly going to be the quality. Most importantly has got to be the location.

Speaker Change: And certainly pricing as well so we continue to monitor we're hanging around the hoop and.

Theodore J. Klinck: We'll see where it plays out, but certainly there's nothing imminent. Okay. And then if a Dallas acquisition or development opportunity came up over the next year, would that still likely be in a JV? Or are you comfortable, at this point, able to go solo on a deal in that market? Yeah, well, first I'd say our entry into Dallas could not have gone better. I think we picked the right partner. In and out every day.

Speaker Change: And.

Speaker Change: We will see where it plays out but certainly there is nothing eminent by any stretch.

Okay, and then if a Dallas acquisition or development opportunity came up over the next year would that still likely be in a JV or are you comfortable at this point able to able to going solo on a deal in that market.

Speaker Change: Yeah, well first I'd tell you I think it's our entry into Dallas could not have gone better I think we picked the right partner and it's in and out every day in fact, we had our board meeting in Dallas last week and the granite Guy has joined us for dinner and tours and and this.

Theodore J. Klinck: In fact, we had our board meeting in Dallas last week and the Granite guys joined us for dinner and tours. Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES, Our goal is to continue to grow Dallas, and if it's with Granite, great, but I can certainly see an opportunity that they may not be interested in that we would go ahead and do. I feel very comfortable.

Speaker Change: Likeminded of a JV partners as <unk>.

Speaker Change: I would just probably ever have so we're thrilled with our partnership but having said that.

Speaker Change: Our goal is to continue to grow Dallas and it was with granite great but.

Speaker Change: I can certainly see an opportunity that we made that they may not be interested in that we would go ahead and do on our own we feel very good market now.

Robert Chapman Stevenson: Okay. All right. And then last one for me, Brendan, what is the outcome you expect to know of the bulk of the property tax savings potentially? And what's the magnitude of the swing there in that range? How much are we talking about? How material is that?

Speaker Change: Alright, and then last one for me Brendan.

Brendan: What is the what do you expect to know the outcome of the bulk of the property tax savings potentially and what's the magnitude of the swing there in that range. How much can we talk about how material is that.

Brendan Maiorana: Yeah, Rob, it's a good question. It's meaningful. There's no doubt about that.

Brendan: Yes, Rob it's a good question, Amit, it's meaningful Theres no no doubt about that.

Speaker Change: I would say that I think we will have.

Brendan Maiorana: I would say that I think we will have more clarity in Q2 and then even more clarity as we get into Q3. But, I mean, there's certainly the possibility, in terms of challenging some of the assessments, that these could drag on beyond 2024. So, we will see where that is, but it could certainly swing us a few pennies in either direction, depending on what the ultimate resolution of these assessments is. And where are you? Are you just in the middle in terms of guidance?

Speaker Change: More clarity in Q2, and then even more clarity as we get into into Q3, but I mean, there's certainly possibility in terms of challenging somebody assessments that these could drag on.

Speaker Change: Beyond 2024, so we will see where that is.

Speaker Change: But it could certainly swing us a.

Speaker Change: A few pennies in either direction depending on.

What the ultimate resolution of these assessments are.

Speaker Change: And where did you just in the middle in terms of the guidance how has that impacted into the guidance.

Robert Chapman Stevenson: How has that impacted the guide? Yeah, we have assumed savings within the guidance. We haven't assumed at the top end of what is possible. So I think that it is roughly in the middle in terms of kind of the high end and the low end in terms of what we have factored in. Or I would say more than what's in the middle; I think it's really where we think the most likely outcome is going to be. Okay, that's helpful. Thanks, guys. I appreciate the time.

Yeah, we have we have assumed savings within the guidance, we haven't assumed at the top end of what is possible. So I think that it is roughly in the middle in terms of kind of the high end and the low end in terms of what we have factored in or I would say.

Speaker Change: More than what's in the Middle I think it is really where we think the most likely outcome is going to be.

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

Speaker Change: Yeah.

Michael Anderson Griffin: Unknown Attendee, We now have Michael Lewis from... Great, thank you. You talked about the characteristics of some of the potential non-core dispositions. As far as the ones you've already done, right, I'm looking at $79 million with $6 million of NOI. That's about a mid-7 cap rate. Is it fair to look at this and say, you know, Highwoods is selling some of their assets that are non-core, that are not their best assets, at a mid-7, and the stock, even though it's been a big outperformer recently, we still have it at like a 10% implied cap rate.

Speaker Change: Thank you Rob.

Speaker Change: Now have Michael Lewis from Journal.

Michael Anderson Griffin: Great. Thank you.

Michael Anderson Griffin: You talked about kind of the characteristics of some of the potential non core disposition as far as the ones you've already done right I'm looking at $79 million.

Michael Anderson Griffin: $6 million of NOI, that's about a seven.

Michael Anderson Griffin: Cap rate is it is it fair to look at this and say hi.

Michael Anderson Griffin: Et cetera, noncore that are not the best assets at a mid seven and the stock even though it's been a big Outperformer recently, we still have it like a 10 imply cap rate.

Michael Anderson Griffin: Am I comparing apples and oranges, or is it fair to kind of look at, you know, you closed some sales, you proved out some pricing, and, you know, we could read through to the rest of your portfolio a little? I think if you look at the assets we did sell, we're thrilled with the mid-7 cap rate. Now look, they were an incredible location, which is very similar to most of our assets in our portfolio.

Michael Anderson Griffin: Am I, comparing apples and oranges or is it fair to kind of look at you closed some sale. It proved out some pricing and we can read through into the rest of your portfolio a little.

Michael Anderson Griffin: Yeah.

Maybe I can start and if anybody else wants to jump in.

Speaker Change: Look I think if you look at the assets, we did sell where we're thrilled with the mid seven cap rate now look they were incredible location, which very similar to most of our assets in our portfolio. They are they do have some medical component right. Then I think there is a very liquid market on the on the mob stuff, but certain.

Michael Anderson Griffin: They do have some medical components, and I think there's a very liquid market for the MOB stuff, but certainly, we were pleased with the mid-7 cap rate, and I think it was certainly higher quality or the vast majority of these assets.

Speaker Change: We were pleased with the mid seven cap rate.

Speaker Change: It was certainly by selling them and enhanced our overall portfolio quality as well. So I think the rest of our portfolio is.

Speaker Change: It's a higher quality a vast majority of these assets.

Theodore J. Klinck: Certainly trading at a 10 cap rate, we think. (inaudible) Indicative of the assets we have. Good answer. Thanks.

Speaker Change: Certainly trading at 10 cap rate, we think is his.

Speaker Change: It is way too high but I think we've proven out over the last two or three years. We've got multiple sales that have been well below those cap rates over the last two or three years. So.

Speaker Change: I think it's just indicative of the assets we own.

Speaker Change: Good answer thanks.

Michael Anderson Griffin: You know, second, you talked a lot on this call about the timing of the trough occupancy, and Brendan kind of laid out how 2024 might go in terms of cadence. Could you just remind us, or have you said, you know, what you think that trough occupancy will be early, early next year? And how much better now?

Speaker Change: Second you talked a lot on this call about the timing of the trough occupancy Brendan kind of laid out a 2024 might go in terms of hate it.

Speaker Change: Could you just remind us or have you have you said what do you think that trough occupancy will be in early early next year.

Speaker Change: And how much better now.

Michael Anderson Griffin: Are you, you know, you talked about trending better than that? So maybe you could answer both parts of that, or one part of it, just trying to figure out kind of where this bottoms out and and how much better you might be doing than you first expect. Yeah, hey, Mike, it's Brendan. So we're obviously not in a position to kind of give you 25 guidance and outlook on this call. But what I can do is maybe provide some ingredients that will help you think through that question, which is a good one.

Speaker Change: Talked about trending better than that.

Speaker Change: So maybe you could answer both parts of that are one part of it.

Speaker Change: Just trying to figure out kind of where that bottoms in and how much.

Speaker Change: Better you might be doing than you first expected.

Speaker Change: Yeah, Hey, Mike It's Brendan.

Brendan: We're we're obviously not in position to kind of give 25 guidance and outlook on this call.

But what I can do is maybe provide some ingredients that will help you think through that question, which is a good one.

Brendan: For year end.

Brendan Maiorana: So for year end, 24, which we switched to give average guidance, which we think is a more meaningful metric, I think we're probably originally, embedded sort of within that outlook was probably ending the year at around call it between 86 and 87. I think we are trending towards the high end of that range and potentially, you know, could be even a little bit above the upper end of that range. So that's better, call it 50 basis points better by year end than we thought.

Brendan: 24, which we switched to give average guidance, which we think is a more meaningful metric.

Brendan: I think we're probably.

Brendan: Originally.

Brendan: Embedded within that outlook was probably ending the year at around call. It between 86%, 87% I think we are trending towards the high end of that range and potentially it could be even a little bit above the upper end of that range. So that's better call. It 50 basis points better by year end than previously.

Brendan: What we thought.

Brendan Maiorana: And then we've talked about some of the big expirations that we have kind of in early 25, principally in Nashville. But some of the leasing activity that we have done so far this year and some other prospect activity that we have are leases that will commence in 25. So that will offset some of that.

Brendan: And then we've talked about some of the big expirations that we have kind of an early 'twenty five principally and in Nashville.

Brendan: But some of the leasing activity that we have done so far this year and some other prospect activity that we have are leases that will commence in 25, so that will offset some of that so I think that that just puts us in better position and then the longer that we go on with having.

Michael Anderson Griffin: So I think that that just puts us in a better position, and then the longer that we go on with having additional quarters of good leasing volume, that really builds the base to kind of get the recovery post the trough number. So I think as we go on and what we're paying attention to and what I think, you know, you and others will pay attention to in terms of our performance is if we continue to do well as we go progress throughout 24, that's really going to be to our benefit in 25 and thereafter.

Brendan: Additional quarters of good leasing volume that really builds the base to kind of forget the recovery post the trough numbers. So I think as as we go on and what we're paying attention to and what I think you and others will pay attention to in terms of our performance is if we continue to lease well as we go progress throughout 'twenty.

Brendan: Sure that's really got out of <unk> to our benefit in 'twenty five and thereafter.

Brendan: Okay.

Michael Anderson Griffin: Okay, that's a perfect lead into my last question, which is, do we know why the pickup truck has been leasing over the last, you know, four or five or six months? And, you know, I'm asking why because maybe that's important to understanding whether this is sustainable or not, or, you know, or has this just been surprising to you as well at a. Good question, Michael. Look, I think it might be a few things.

Brendan: Perfectly into my last question, which.

Speaker Change: Do we know why the pickup in leasing over the last four or five or six months.

Speaker Change: Yeah.

I'm asking the why because maybe that's important to understanding whether this is sustainable or not.

Speaker Change: Or is it just.

Speaker Change: It's been surprising to you as well I don't know.

Speaker Change: Yes. Good question, Michael look I think it might be a few things.

Theodore J. Klinck: A couple of years ago, there were a lot of companies that were sort of kicking the can and doing short-term renewals, and I don't think landlords and companies are doing that anymore. Landlords don't want them to, and companies are getting closer to making their return to work decisions and seeing how their layouts are going to be. So I just think there was a wall of maturities that got pushed out, and they're now having to be dealt with.

A couple of years ago, there were a lot of companies that were sort of kicking the can and doing short term renewals and I don't think landlords and companies are doing that any more landlords don't want them to and companies are getting closer to make them their return to work.

Speaker Change: Decisions and seeing how their layouts are going to be so I just think there was a.

Speaker Change: Wall of maturities that got lease maturities that got pushed out there now having to be dealt with and then I'd also think look I do think that the distress is also increasing.

Theodore J. Klinck: Then I also think – look, I do think the distress is also increasing from the last couple of years, and some of those customers are also having to make those decisions if they're going to stay in a building or move. The other thing I do think is in-migration. We're starting to pick up a little bit in our markets, and we've been chasing a couple of customers. We just... Raleigh just won one from Dallas.

Speaker Change: From the last couple of years and some of those customers are also having to make those decisions if theyre going to stay on that.

Speaker Change: In a in a building.

Speaker Change: Or move.

Speaker Change: Do think the other thing I do think of Xyrem in migration is starting to pick up a little bit in our markets. We've been chasing a couple of customers. We just Raleigh, just one one from Dallas, we were chasing a both in Raleigh and Dallas.

Theodore J. Klinck: We were chasing them both in Raleigh and Dallas, a corporate relocation, which is sort of fun to see. If you talk to the economic development folks, for the last couple of years, it's largely been manufacturing and industrial users. We're now starting to see more office-using customers come in. Just this quarter, we did 10 leases for new-to-market customers. Now, they were largely small regional offices. The largest was 27,000 feet, and then about a 17,000-footer, and that went down to 2,000 or 3,000 feet.

Speaker Change: Corporate relocation, which is sort of fun to see those if you talk to the economic development folks for the last couple of years has largely been manufacturing and industrial users. We're now starting to see Theres more office using customers come in just this quarter. We did 10 leases for two new to market customers now they are largely.

Speaker Change: Small regional offices, the largest was 27000 feet and then about 17000 footer and that goes down to two or 3000 feet. There's over 60000 feet of in migration companies that are moving and open up new offices.

Theodore J. Klinck: But it's over 60,000 feet of in-migration, companies that are moving and opening up new offices. Unknown Attendee, Theodore Klinck, Brian Leary, Nicholas Thillman, Theodore Klinck, Brian, Great, thank you. We now have Claire Oksana from Doody.

Speaker Change: Largely just opening up new offices in our market. So I just think the.

Speaker Change: Things just.

Speaker Change: We're starting to see it open up a little bit.

Speaker Change: Yeah.

Speaker Change: Great. Thank you.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Uh-huh O'connor.

Speaker Change: Okay got it.

Claire Oksana: Hi, yes, good morning. Just a quick one for me in terms of just overall demand. Could you talk a little bit about demand for some of the recently vacated space, like activity space and the CDC space? I think you already gave some color about some of the upcoming. [inaudible] Yeah, Teo, I think specifically on the Tiviti. As you know, we redid the landmark lease earlier this quarter, I think, or earlier last quarter. We took back about 110,000 feet.

Speaker Change: From Deutsche Bank.

Speaker Change: Hi, Yes, good morning, a quick one for me.

Deutsche Bank: In terms of just overall demand could you talk a little bit about demand for some of the recently vacated space like activity Nathan with BD, Inc. I think.

Deutsche Bank: Or do you get color about some of the upcoming.

Deutsche Bank: Vacancies, but curious about those to sneak in one particular area.

Deutsche Bank: The new leasing that.

Deutsche Bank: Particular.

Deutsche Bank: The quarter was related to backfill any kind of recent vacancies.

Deutsche Bank: Okay.

Speaker Change: Yeah, Tayo I think specifically on the on the activity as you know, we redid our landmark lease.

Speaker Change: Earlier this quarter I think it was earlier last quarter.

Speaker Change: We took back about 110000 feet, we have really good activity multi.

Theodore J. Klinck: We have really good activity, multiple prospects for it. So we did a big high-wattizing project a couple years ago, or a year or so ago, and it finished, and it's really generated demand. It's been very well received in the market.

Speaker Change: Multiple prospects on it so we did a big highway ties and project a couple of years ago or a year or so ago and finished and it's really generated demand has been very well received in the market. So that's about 110000 feet and we've got prospects I'd say prospects either agreed to or strong prospects.

Theodore J. Klinck: So that's about 110,000 feet, and we've got, you know, prospects, I'd say prospects either agreed to or strong prospects that we're trading paper with for about 80,000 feet or so. I don't know if we'll make all those, but we feel pretty good about a lot of those. So we feel really good about that. I don't think much of the leasing activity this quarter was really backfilling anything other than maybe one or two of the activity spaces that we've seen. Great. Thank you. We now have Peter Abramowitz. Hi, thank you.

Speaker Change: That we're trading paper with for about 80000 feet or so I don't know if we'll make all of those but we feel pretty good about a lot of those so we feel really good about that.

Speaker Change: I don't think much of the leasing activity this quarter was really.

Speaker Change: Backfill in anything other than maybe one or two of the activity spaces that we've signed.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

P J: P J.

Speaker Change: Uh huh.

P J: Alright. Thank you, yes, so just kind of want to dive into some of the comments around.

Peter Abramowitz: Yeah, so I just kind of want to dive into some of the comments around potential future growth opportunities. Some of the underwriting you're doing, I guess we have a decent sense from, whether it be non-core asset sales or the unsecured bond deal that you did last year, where your cost of capital might be today. So we're just wondering if you could talk about from a pricing perspective, whether initial yields or IRR relative to that cost of capital kind of, you know, what you're hopeful for, what's realistic when deals do finally kind of start to come back to market, and start to pencil, like, where are your expectations for where those... Unknown Attendee, Sure.

Central kind of future growth opportunities.

Some of the underwriting Youre doing I guess, we have a decent sense from whether it be noncore asset sales or the unsecured bond deal that you did last year.

P J: Where your cost of capital might be today. So I was just wondering if you could talk about from a pricing perspective.

P J: Our initial yield or IRR.

P J: Relative to that cost of capital kind of.

P J: What you're hopeful for what's realistic.

P J: When deals do you finally start to come back to market.

P J: And start to pencil like where are your expectations for for where those would be from an underwriting perspective.

Theodore J. Klinck: You know, Peter, as you know, I mean, look, we're interested in growing the business and improving the quality of the portfolio, both core and value-add acquisitions. Coming out of the GFC, we primarily did value-add acquisitions. You know, we want to own quality assets in the best business districts of our markets, and we're looking to create, you know, where we can improve our cash flow growth over time as well, and I think coming out of the GFC, we were able to do that very successfully. So where are we now in terms of underwriting? You know, I think, obviously, we look for a discount on replacement costs and a lot of different metrics.

P J: Sure.

Peter as you know.

Peter: I mean look we're interested in growing the business and.

Peter: Improving the quality of the portfolio, both core and value add acquisitions coming out of the GSE, we primarily did value add acquisitions.

Peter: We want to own quality assets in the best business districts of our markets and we're looking to create.

Where we can improve our cash flow growth over time, as well and I think coming out with <unk>, we're able to do that very successfully so where are we now in terms of the underwriting I think obviously, we look for a discount to replacement cost and a lot of different metrics.

Theodore J. Klinck: IRR, you know, we're sort of underwriting to a double-digit, low-double-digit, unlevered IRR, Peter. That's sort of what we're doing today. And again, there's a handful of deals out there that we're seeing where they're going to price, but we'll see. But it's, you know, those type of metrics; if we can get a stabilized cap rate from the high single-digit, low double-digit within 11% or low double-digit unlevered IRR, those feel pretty good for us. If we can improve the quality of the portfolio, if we can get... acquisitions under the belt that are like, That's helpful. Thank you, Ted.

IRR, we're sort of underwriting to a double digit low double digit unlevered IRR Peter.

Peter: Sort of what we're doing today and again there is a handful of deals out there that we're seeing where theyre going to price, but we'll see.

Peter: But it's those type of metrics that we can get a stabilized cap rates in the high single digit low double double digit within 11% or low double digit unlevered IRR those feel pretty good for us.

Peter: And then we can improve the quality of the portfolio if we can get.

Peter: Acquisitions under our belt that are like that.

Speaker Change: That's helpful. Thank you Ted and then one on the leasing market can you just comment on.

Peter Abramowitz: And then one on the leasing market. Could you just comment on the sort of length of deal cycles? I know that was both for you guys and for office overall, which became more of a challenge last year because tenant tenant decision making was just a little bit slower. Could you talk about kind of that dynamic and where that's at in the first couple months to start the year? Yeah, certainly that's been the frustrating part.

Theodore J. Klinck: Sort of the length of deal cycles, I know that was.

Speaker Change: Both both for you guys and for office overall became more of a challenge last year that tenant tenant decision, making was just a little bit slower.

Speaker Change: Could you talk about kind of that dynamic and where that's at and the first couple of months to start the year.

Speaker Change: Yes, certainly that's been the frustrating part is definitely taking longer to get deals done.

Theodore J. Klinck: It's definitely taken longer to get deals done. Bigger ones are really taking longer. I mean, some are, you know, we think we're going to get it done, it may get pushed a quarter, two quarters, and, in some cases, even three quarters. It's taken a long time.

Speaker Change: Bigger is really taking longer I mean summer, we think we're going to get it done it may get pushed a quarter or two quarters and in some cases, even three quarters.

Speaker Change: It's taken a long time, so the bigger the deal the longer it takes in general.

Theodore J. Klinck: So the bigger the deal, the longer it takes in general, just whether it has to go up through the corporate real estate department up to the CEO. And a lot of it's based on the CEO's confidence level in the economy as well. I think interest rates play into that as well. So a bigger, bigger deal takes longer. Smaller deals are the bread and butter.

Speaker Change: Just whether it has to go up through the.

Speaker Change: Corporate real estate department up to the CEO and lot of its based on the CEO confidence level and the economy as well I think interest rates plays into that as well so.

Speaker Change: Longer bigger deal takes longer smaller deals our bread and butter, we're still getting a lot of those done those or even taken longer but not nearly as long as as you know called the 100000 square foot users and above the nice thing we've seen in the last let's say quarter or two as we've seen full floor more full floor users more two floor users.

Peter Abramowitz: We're still getting a lot of those done, but those are even taking longer, but not nearly as long as, you know, called the 100,000 square foot users and above. The nice thing we've seen in the last, I'd say, quarter or two is we've seen full floor, more full floor users, more two floor users. So that sort of mid-size type user, we are with those five. Peter, hey, it's Brian

Speaker Change: So that sort of mid sized type of user we're seeing a lot more of those and some of the decisions getting made.

Brian M. Leary: I might add that real quick. That does. Another thing that's taking a little while is that people are continuing to price and price work. We don't have a punchline yet on that.

Speaker Change: With those size customers that makes sense.

Speaker Change: Peter Hey, it's Brian.

Peter: With other.

Peter: The other thing Thats, taking a little while people are continuing to price and price work.

Peter: We don't have a punch line yet on that but it seems like escalations have have stopped or leveled out or plateaued on build outs and so there is potential visibility into maybe getting a better price. So people kind of are holding on to see some of that ti that build out that cost of moving into new space.

Peter Abramowitz: But it seems like escalations have stopped or leveled out or plateaued on build out, so there is potential visibility into maybe getting a better price. So people kind of are holding on to see some of that TI, that build out, that cost of moving into new space. That's helpful.

Peter: It's come down.

Yeah.

Speaker Change: That's helpful. Thank you and one last one if I could.

Peter Abramowitz: And one last one, if I could, just trying to think through from the modeling aspect the earnings impact of any potential disposition for the rest of the year. I mean, are the deals that you've done so far and rally is that kind of a good barometer of what we should expect pricing wise? Peter, it's Brendan.

Speaker Change: Just trying to think through from a modeling aspect the earnings impact of any potential disposition. The rest of the year. I mean are the deals that you've done so far and rally is that is that kind of a good barometer of what we should expect pricing wise.

Speaker Change: Peter It's Brendan so first what I would say is while that dispositions that we did so far this year are dilutive to <unk> I think to your first question. They are accretive to our cash flow. So I think we would expect comparable dynamics in term.

Brendan Maiorana: So first, what I would say is, while the dispositions that we have done so far this year are dilutive to FFO, I think, to your first question, they are accretive to our cash flow. So I think we would expect comparable dynamics in terms of any future dispositions that we may do this year or on a go-forward basis. Where the cap rates shake out, it depends. Every deal is unique, so it depends on the particular circumstances for that particular deal.

Speaker Change: Of any future dispositions that.

Speaker Change: And that we May do this year or on a go forward basis.

Where the cap rates shake out it depends every deal is unique so it depends on the particular circumstances.

Speaker Change: For for that particular deal.

Speaker Change: I think it's.

Brendan Maiorana: We'll see where cap rates shake out. I would say the bias is maybe a little bit higher than the cap rates that we transacted at early this year, but we'll see. But I think in general, the capital recycling activity that we do, what you ought to see is an improved cashflow outlook for the company, an improved portfolio quality, and therefore a lower risk overall for us as an enterprise. That's awesome.

We'll see where they were where cap rates shake out I would say the bias is maybe a little bit higher than the cap rates that we.

Speaker Change: Transacted at them early this year, but we'll see but I think in general the capital recycling activity that we do.

Speaker Change: Audit you, what you ought to see us and improved cash flow outlook for the company and improved portfolio quality and therefore, a lower risk overall for us as an enterprise.

That's helpful. Thanks, Brendan Thank you team.

Peter Abramowitz: Thanks, Brendan. We now have Ronald Kamden of Morgan Stanley. Hey, good afternoon, guys. Just the first question you guys talked about, you know, some of the explorations through the year that might be a headwind to occupancy, maybe just give us a picture of what retention would look like, you know, in 24, if we were to exclude those move-outs, so just the, you know, retention on everything else. Yeah, hey, Ron, it's Brendan.

Speaker Change: We now have Ronald Camden.

Ronald Kamdem: Morgan Stanley You May proceed with your question.

Ronald Kamdem: Hey, Good afternoon, guys. Just the first question you guys talked about some of the explorations.

Through the year and how that might be a headwind to occupancy maybe just give us a picture of what retention would look like.

Ronald Kamdem: 24.

Ronald Kamdem: We were to exclude those those move outs or just the pension on everything else.

Ronald Kamdem: That's.

Ronald Kamdem: Yeah, Hey, Ron it's Brendan I'll take that.

Ronald Kamdem: I'll take that. So, you know, retention, we always struggle with this answer to a question that we get often because we do so many early renewals that it depends on the date that you start counting retention. So, prior to coming into this year, we had already renewed a million square feet of original 2024 expirations that were pushed out into future years. So, when you look at what's left over as you kind of come into the year, you have an adverse selection bias there, and clearly, like, that's where, you know, the retention level on the remainder is low.

Ronald Kamdem: So.

Brendan: Retention, we always struggle with this answer and question that we get often because we do so much early renewals that it depends on that.

Brendan: Date that you start kind of counting retention so prior to coming into this year, we had already renewed a 1 million square feet of of original 2024 explorations that are pushed out into future years. So when you look at what's left over as you kind of come into the year you have adverse selection bias, there and clearly like Thats, where they are.

Brendan: Retention level on the remainder is low so that number probably for kind of what we had left in the year, including the known move outs was probably call. It.

Ronald Kamdem: So, that number, probably for kind of what we had left in the year, including the known move-outs, was probably call it, you know, in round numbers, around 40%. We talked about some of the large known expirations that are there. So, that number would be a little bit, would be 10 plus percentage points higher if you excluded those from kind of the numerator and denominator.

Round numbers around 40%, we've talked about some of the large known.

Brendan: Explorations that are there so that number would be a little bit it would be 10 percentage points higher if you excluded those from kind of the numerator and denominator.

Brendan: But that gives you a sense of kind of where we are.

Speaker Change: Got it.

Brendan Maiorana: But that gives you a sense of kind of where we are. Got it. And yeah, the second one on McKinney, and all of you guys talked about paying down that loan potentially. Yeah, I guess, [inaudible] Yeah, no plans for capital raising for this year. So I mean, I think as we sit here right now, we have almost nothing drawn on the line.

Speaker Change: Second one on the Mckinney.

Speaker Change: You guys talked about paying down that loan potentially I guess.

Speaker Change: Yes.

Speaker Change: With the sales you guys have executed on and potential additional $150 million.

Speaker Change: Should we take that to mean.

Speaker Change: You're just going to use existing corporate liquidity or could we potentially see you guys tap.

Speaker Change: Tap the unsecured markets you get here.

Speaker Change: Yeah, No no plans to for capital raising for this year or so I mean, I think as we sit here right now we have almost nothing drawn on the line. So have that full $750 million. That's available certainly have construction loans in place for that to Dallas.

Ronald Kamdem: So have that full 750 million that's available, certainly have construction loans in place for the two Dallas development projects, so that would satisfy the bulk of the remainder of the expenditure there. So we really have plenty of liquidity. And I think to your point, with potential dispositions that are on the horizon, I think it's, you know, more of a challenge in terms of deciding what capital we want to pay off with any disposition proceeds that come in the door rather than thinking about capital. Got it. And then, yeah, yeah, I think you guys talked about Pittsburgh and Bass Perry.

Speaker Change: Dallas Development project, so that would satisfy the bulk of the remainder of spend there. So we really have plenty of liquidity and I think to your point with potential dispositions that are on the horizon I think it's more of a challenge in terms of deciding what capital we want to pay off with any.

Speaker Change: The proceeds that come in the door, rather than thinking about capital raising.

Yeah.

Speaker Change: Got it and then I think you guys talked about Pittsburgh and boss Teri, maybe just an update on our balance as well would be helpful.

Ronald Kamdem: Maybe just an update on Novellas as well would be helpful. Yeah, so on Novellas, again, we like the prospect activities. You know we went direct with one of the sublease customers, and we've got over 200,000 square feet of prospects to backfill the remaining, you know, call it 100 or so, 1,000 feet, maybe a little more than that. I feel pretty good about the prospect activity; I had a lot of tours. Thank you, guys. We now have Dylan Burzinski from Green Street.

Speaker Change: Yeah. So on Novellus again, we like the prospect activity as you all know we went direct with a with one of the sublease customers and we've got over 200000 square feet of prospects.

Speaker Change: Backfill the remaining you know call it a 100 or so thousand feet, maybe a little more than 100, so we feel pretty good about the prospect activity a lot of tours.

Speaker Change: Yeah.

Speaker Change: Got it thank you guys.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: We now have that in there.

Speaker Change: From Green Street.

Dylan Burzinski: Hi guys. Most of the questions have been asked, but I guess, Brian, going back to your comments on focusing on occupancy over rental growth, I mean, is it your expectation that we'll continue to see some degradation in that effect of rents across the portfolio, or how should we be thinking about that? Dylan, I'm accused among the three around this table of being the eternal optimist.

Speaker Change: Yeah.

Speaker Change: Hi, guys.

Speaker Change: Most of my questions have been asked me I guess, Brian going back to your comments on focusing on occupancy over over rental growth. I mean is it your expectation that we'll continue to see some degradation in net effective rents across the portfolio or how should we be thinking about that.

Speaker Change: Yeah.

Brian M. Leary: Dylan I'm accused among the three around this table to be the eternal optimist, so I'll lean into that a little bit now.

Brian M. Leary: So I'll lean into that a little bit. Now, look, obviously, headwinds. I think tenants feel like it's a tenant's market, and it is, but I do feel that way. Unknown Attendee, Theodore Klinck, Brian Leary, Nicholas Thillman, I feel pretty optimistic about where we're at. Dylan, what I would just add to that is, I think given the kind of competitive dynamics that are in the leasing environment as it stands now, our ability to fund TIs is a benefit to us.

Brian M. Leary: Obviously headwinds I think.

Speaker Change: Tenants feel like it's a tenants market than it is but I do feel.

Brian M. Leary: Constructive on our ability to hold kind of where we're at based on the quality of the assets based on their seven different things Ted highlighted why.

Brian M. Leary: Maybe our leasing momentum is as maybe more than previous averages with regard to a flight to quality flight to capital I don't see it greatly improving.

Brian M. Leary: Anytime soon maybe as costs come down to fit up.

Brian M. Leary: But in general I feel like it.

Brian M. Leary: I feel pretty optimistic about where we're at granite.

But I would just add to that is I think given the kind of competitive dynamics that are in the leasing environment as it stands now our ability to <unk>.

Brian M. Leary: <unk> is a benefit to us, but what we're looking for in terms of customers and prospects to get in in.

Brian M. Leary: But what we're looking for in terms of customers and prospects to get in consideration for that is higher face rates and longer terms. So I think what that's going to do is drive, it's going to keep net effectives holding up reasonably well, which is what we've seen generally happen. Now that might mean that there's a little bit more upfront capital, but that secures longer lease terms at attractive rates. So I don't think you're likely to see significant degradation in terms of net effectives, but it might mean there's a little bit more upfront.

Brian M. Leary: Consideration for that is higher face rates and longer terms. So I think what that's going to do is drive is going to keep net effective is holding up reasonably well, which is what we've seen generally happen now that might mean that theres, a little bit more upfront capital, but that secures longer lease term at attractive rates. So I don't think you're likely to see.

Brian M. Leary: Significant degradation in terms of net effective but it might mean theres a little bit more upfront capital.

Brian M. Leary: Great. Thanks, guys. Thank you. We have no further questions on the line, so I'd like to hand it back to Ted. Thank you everybody for joining us on the call today and thank you for your interest in Highwoods. We look forward to talking to you next quarter, if not before. Have a great day. Thank you for joining the Highwoods Properties Q1 2024 earnings call. You may now disconnect your lines and, please... Thank you for joining the High.

Brian M. Leary: Yeah.

Brian M. Leary: Yeah.

Speaker Change: Great. Thanks, guys.

Speaker Change: Thank you.

Speaker Change: We have no side the question on the line.

Unknown Attendee: Back to Ted Koenig.

And final one.

Unknown Attendee: Thank you for everybody for joining us on the call today and thank you for your interest in Hi, Woods, and we look forward to talking to you next quarter, if not before have a great day.

Unknown Attendee: Okay.

Unknown Attendee: Thank you for joining the highlights these key 1000 plentiful adding cool.

Speaker Change: You may now disconnect your lines and enjoy Gary.

Speaker Change: Okay.

Speaker Change: Thank you for joining the high.