Q2 2025 Highwoods Properties Inc Earnings Call

Operator: Good morning. Thank you for attending the HIGHWOODS PROPERTIES Q2 2025 earnings call. My name is Matt, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I now have to pass the conference over to our host, Brendan Maiorana. Brendan, please go ahead.

Brendan Maiorana: Thank you, Operator, and good morning, everyone. Joining me on the call this morning are Ted Klinck, our Chief Executive Officer, and Brian Leary, our Chief Operating Officer. For your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplemental, they're both available on the Investors section of our website at highwoods.com. On today's call, our review will include non-GAAP measures such as FFO, NOI, and EBITDA. The release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. 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.

Good morning. Thank you for attending the Highwoods Properties Q2 2025 earnings call. My name is Matt, and I’ll be the moderator for today’s call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press *1 on your telephone keypad. I now have to pass the conference over to our host, Brendan Maiorana. Brendan, please go ahead.

Thank you, operator, and good morning, everyone. Joining me on the call this morning, are Ted Clank, our chief executive officer, and Brian Larry. Our chief operating officer for your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplemental, they're both available on the investors section of our website at highwoods.com on today's call. Our review will include non-gaap measures such as ffo noi and ebit. There, the release in supplemental. Include a Reconciliation of these

Non-gaap measures to the most directly comparable, gaap Financial measures.

Brendan Maiorana: As you know, actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update any forward-looking statements. With that, I'll now turn the call over to Ted.

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.

Ted Klinck: Thanks, Brendan, and good morning, everyone. We had another strong quarter with robust second-gen leasing and excellent financial results. We entered 2025 with two key priorities. First, continue to upgrade our portfolio quality by rotating out of slower growth, more CapEx-intensive properties, and rotating into higher growth assets that are more capital efficient. And second, make significant strides towards capturing the substantial NOI growth potential we have in our operating portfolio and development pipeline, which will drive meaningful organic growth in future years. We continue to make progress towards both of these priorities. In the second quarter, our leasing volumes were strong, including signing several second-gen new leases on spaces that are currently vacant, and we continue to make progress on the remaining availability at our development properties.

Statements with that, I'll now turn the call over to Ted.

Thanks, Brendan, and good morning, everyone.

We had another strong quarter with robust second gen, Leasing, and excellent Financial results.

We entered 2025 with 2 key priorities.

First continue to upgrade our portfolio quality by rotating out of slower growth. More capex, intensive properties and rotating into higher growth assets, that are more Capital efficient,

And second.

Make significant strides towards capturing the substantial noi growth potential. We have in our operating portfolio and development pipeline

Which will drive meaningful organic growth in future years?

We continue to make progress towards both of these priorities.

In the second quarter, leasing volumes were strong, including signing several second-generation new leases on spaces that are currently vacant.

Ted Klinck: While we didn't close any acquisitions or dispositions during the period, we're actively underwriting potential new investments and have numerous assets in the market for sale. We will continue to deliver on our proven strategy of rotating out of older, slower growth properties that are more CapEx intensive into better located, higher growth assets that are more capital efficient. We continued our healthy leasing volume in the quarter with 920,000 square feet of second-gen leasing, including 370,000 square feet of new leasing. The consistent level of elevated leasing volumes for the past several quarters increases our confidence that our occupancy will steadily improve late in 2025 and escalate thereafter. We have also further unlocked the NOI growth potential in our four core assets with meaningful upside potential.

And we continue to make progress on the remaining availability at our development properties.

while we didn't close any Acquisitions or dispositions During the period,

We're actively underwriting, potential new Investments.

And have numerous assets in the market for sale.

We will continue to deliver on our proven strategy of rotating out of older slower Growth Properties that are more capex intensive and to better locate higher growth assets that are more Capital efficient.

We continue our healthy leasing volume in the quarter with 920,000 square feet of second gen Leasing.

Including 370,000 Square ft of new Leasing.

The consistent level of elevated lease-in volumes for the past several quarters increases our confidence that our occupancy will steadily improve late in 2025 and escalate thereafter.

we have also further unlocked the noi growth potential,

Ted Klinck: As a reminder, our core four are Alliance Center in Buckhead and three assets in Nashville, Symphony Place in the CBD, Westwood South in Brentwood, and Park West in Franklin. We have forecasted 25 million of annual NOI upside just from stabilizing these core four. After our leasing performance this quarter, we now have 50% of this upside scotched with signed leases, and we will have strong prospects for another 20%. Turning to our development pipeline, while we only signed 19,000 square feet during the quarter, we have advanced a number of prospects through the leasing process and remain confident we'll increase our lease rate by the end of the year. We have over 10 million of NOI growth potential at Glenlake 3 in Raleigh and Granite Park 6 in Dallas, two development properties that delivered in 2023 that are not yet stabilized.

In our 4 core assets with meaningful upside potential.

As a reminder.

For cor 4.

Our alliance Center in Buckhead.

And 3 Assets in Nashville.

Symphony Place in the CBD.

Westwood South in Brentwood.

And Park West in Franklin.

We have forecasted 25 million of annual noi upside just from stabilizing these core 4.

after our leasing performance this quarter,

We now have 50% of this upside scotched.

Stein leases. And we will have strong prospects for another 20%.

Turning to our development pipeline.

Well, we only signed 19,000 square feet during the quarter.

We have advanced a number of prospects, through the leasing process and remain. Confident will increase our lease rate by the end of the year.

We have over 10 million of inali growth. Potential at Glen Lake 3 in Raleigh and granite Park 6 in Dallas.

2 development properties that were delivered in 2013.

Ted Klinck: We have over 6 million of this NOI potential already signed, but where occupancy hasn't yet commenced. In addition, we have over 20 million of NOI growth potential at the two developments that delivered earlier this year, 23 Springs in Dallas and Midtown East in Tampa. Our first customers at these developments recently moved in, and additional customers will take occupancy late in 2025 and in 2026. Combined, these two properties with 59% lease, and we have strong prospects for another roughly 15%. Given the combination of high construction costs, elevated vacancy levels, limited financing availability, and risk-adjusted yield requirements, starting a new spec development continues to be difficult for anyone in this environment. However, the absence of new deliveries and the dwindling availability over the next few years creates an opportunity for meaningful rent growth at high-quality second-gen product.

That are not yet stabilized.

We have over 6 million of this. Noi potential already signed but we're occupancy hasn't yet commenced.

In addition, we have over 20 million of noi growth potential at the 2 developers that delivered earlier this year.

23 Springs in Dallas and midtown, east and Tampa.

Our first customers at these developments recently moved in and additional customers will take occupancy late in 2025 and in 2026.

Combined, these two properties are 59% leased, and we have strong prospects for another roughly 15%.

Given the combination of high construction costs.

Elevated vacancy levels.

Limited financing availability.

And risk adjusted yield requirements.

Starting a new spec development continues to be difficult for anyone in this environment.

Ted Klinck: We're already seeing the benefits of limited supply as large blocks of high-quality space across many of our markets are being absorbed, which is driving rent growth in the best locations across the Sun Belt. The powerful combination of signed leases moving into occupancy in our operating portfolio, ongoing stabilization of our development pipeline, and continuous portfolio improvement should drive significant growth in earnings and cash flows in the foreseeable future. You may have seen some press recently about Ovation, our future mixed-use development in Franklin outside of Nashville. We recently submitted our development plan to the city. We remain confident Ovation represents one of the best mixed-use ground-up development sites in the entire country and will be a significant opportunity to create sizable value for Highwood shareholders.

However, the absence of new deliveries in the dwindling availability of the next few years, creates an opportunity for Meaningful, rent, growth at high quality, second gen product.

We're already seeing the benefits of limited Supply. It's a large blocks of high quality space across many of our markets are being absorbed which is driving rent growth in the best locations across the Sun Belt.

The powerful combination of sign leases moving into occupancy, and our operating portfolio.

Ongoing stabilization of our development Pipeline and continuous portfolio Improvement.

Should drive significant growth in earnings and cash flows in the foreseeable future.

You may have seen some press recently about Ovation, our future mixed-use development in Franklin, outside of Nashville.

We recently submitted our development plan to the city.

We remain confident Ovation represents 1 of the best mixed use groundup development sites in the entire country.

Ted Klinck: We are working with our partner in the city of Franklin to finalize development plans and do not expect any development announcements until late next year at the earliest. Turning to our performance, we delivered excellent financial results in the quarter, including cash flows that continue to be resilient even with elevated leasing CapEx due to future occupancy build. We delivered FFO of 89 cents per share in the quarter. Our occupancy was roughly flat from Q1 at 85.6%, while our lease rate increased 80 basis points to 88.9%. Leasing is off to another strong start early in Q3 with over 300,000 square feet of second-gen leases signed, including over 100,000 square feet of new leases. We remain optimistic we'll see the lease rate and occupancy levels increase by the end of the year.

And will be a significant opportunity to create sizable value for Highwood shareholders.

We are working with our partner in the city of Franklin.

to finalize development plans and do not expect any development announcements until late next year at the earliest.

Turning to our performance, we delivered excellent Financial results in the quarter including cash flows that continue to be resilient, even with elevated, Leasing capex.

Due to Future occupancy, build?

We delivered ffo of 89 cents per share in the quarter.

Our occupancy was roughly flat from q1 at 85.6%.

while our least rate increased 80 basis points to 88.9%,

Leasing is off to another strong start early in Q3 with over 300,000 square feet of second gen leases signed including over 100,000 square feet of new. Leases

We remain optimistic, we'll see the least rate in occupancy levels, increase by the end of the year.

Ted Klinck: With our strong financial performance in Q2 and upbeat outlook for the balance of the year, we have once again raised the midpoint of our 2025 FFO outlook up 2 cents to a range of $3.37 to $3.45 per share. Since the beginning of the year, we've increased our FFO outlook by 6 cents at the midpoint, or nearly 2%. In conclusion, we're extremely excited about the next few years for Highwoods. We're operating in the strongest BBDs in the Sun Belt that continually have proven to be the places where talent and companies want to be. We have a clear pathway to meaningful growth, growth in earnings, growth in cash flow, and growth in NAV from our existing portfolio and development pipeline.

Financial performance in Q2, and upbeat outlook for the balance of the year.

we have once again, raised the midpoint of our 2025 ffo Outlook,

Up 2 cents to a range of $3.37 to $3.45 per share.

Since the beginning of the year, we've increased our FFO outlook by $0.06 at the midpoint, or nearly 2%.

In conclusion, we're extremely excited about the next few years for Highwoods.

We're operating in the strongest, bbds in the Sun Belt that continually have proven to be the places where talent and companies want to be.

We have a clear pathway to meaningful growth.

Ted Klinck: Plus, we believe the next 12 months represents an excellent opportunity to deploy capital in new investments with strong returns and recycle out of older non-strategic properties where risk-adjusted returns don't meet our objectives. With a strong balance sheet, including limited near-term debt maturities and ample liquidity, we are well positioned to execute on the opportunities ahead of us. Brian.

Growth and earnings growth in cash flow, and growth in NAV from our existing portfolio and development pipeline.

Plus, we believe the next 12 months represents an excellent opportunity to deploy capital in new Investments, with strong returns and recycle out of older. Non-strategic properties, for risk adjusted returns, don't meet our objectives.

With a strong balance sheet, including limited near-term debt maturities and ample liquidity.

We are well, positioned to execute on the opportunities ahead of us.

Brendan Maiorana: Thank you, Ted, and good morning, everyone. Kudos to our tremendous team for the results they delivered in the second quarter with 923,000 square feet of quarterly leasing, of which 371,000 square feet was new, signaling future occupancy gains as those leases commence. Our Sun Belt states our repeat best for business winners. Our markets are outpacing the nation with higher population gains and lower unemployment rates, and our BBD portfolio is outperforming as the beneficiary of our customers' preference for in-office occupancy and, in turn, their continued flight to quality, capital, and owners. With corporate and now federal conviction behind the in-office value proposition, we believe equilibrium has been reached as it relates to remote work and no longer see it as an acute headwind to our portfolio.

Brian.

Thank you, Ted, and good morning. Everyone, kudos to our tremendous team for the results. They delivered in the second quarter.

with 923,000 square feet of quarterly, Leasing

of which 371,000 square feet was new.

Signaling future occupancy gains as those leases commence.

Our Sun Belt states are repeat best for business winners.

Our markets are outpacing, the nation with higher population, gains and lower unemployment rates.

And our BBD portfolio is outperforming as the beneficiary of our customers preference for in-office occupancy and in turn their continued flight to Quality.

Capital and owners.

With corporate and now, Federal conviction behind the in-office value proposition.

We Believe equilibrium has been reached as it relates to remote work.

Brendan Maiorana: With greater numbers returning to the office, there's not only less commute-worthy options available at the top of the market; the bottom is shrinking as well, with CBRE reporting that over 23 million square feet of US office space is on track for demolition or conversion to other uses this year, far outpacing the almost 13 million square feet of new office space being completed in 2025, which figure in itself is far below the 10-year annual average of 44 million square feet of annual deliveries. Coupled with the record low construction pipeline and with the development period of an office building being measured in years, this slow squeeze play has started to move the market in an owner's favor in certain instances, such as new trophy development and in high bear-to-entry BBDs, with the potential for a meaningful and extended shortage of Class A space in the not-too-distant future.

And no longer see it as an acute headwind to our portfolio.

With greater numbers returning to the office.

There's not only less commute worthy options available at the top of the market. The bottom is shrinking as well.

With the CBR reporting at over 23 million square feet of U.S. office space on track for demolition or conversion to other uses this year.

Far outpacing, the almost 13 million square feet of new office space being completed in 2025.

Which figure in itself is far below the 10-year annual average of 44 million square feet of annual deliveries.

Coupled with the record low construction pipeline.

And with the development period of an office, building being measured in years.

This slow Squeeze Play, has started to move the market in an owner's favor in certain instances.

Such as new trophy development.

Brendan Maiorana: Our Sun Belt BBD strategy, which is both urban and suburban in nature, is serving us well. All of our markets are in states that are repeatedly rated by CNBC as the best for business, with North Carolina, Texas, Florida, and Virginia taking the top four spots this year. With regard to the Tar Heel State, between Charlotte and Raleigh, North Carolina is home to 33% of our revenue and 36% of our NOI. Georgia and Tennessee aren't far behind, rounding out the top eight of CNBC's rankings. Bloomberg Economics brings this to bear, highlighting that the Southeast accounted for more than two-thirds of all job growth across the US since early 2020. These three forces: improving in-office utilization, declining competitive supply, and strong demographics, all combined with a resilient economy, are bearing fruit in our leasing activity and make us optimistic our strong performance will continue.

And in high barrier to entry, dbds with the potential for a meaningful and extended shortage of class, a space, and the not too distant future.

Our Sunbelt BBD strategy.

Which is both Urban and Suburban in nature is serving us. Well,

All of our markets are in states that are repeatedly rated by CNBC as the best for business, with North Carolina, Texas, Florida, and Virginia, taking the top 4 spots this year.

With regard to the Tar Hill State between Charlotte and Raleigh. North Carolina is home to 33% of our revenue and 36% of our noi.

Georgia and Tennessee aren't far behind rounding out the top 8 of cnbc's ranking.

Bloomberg Economics brings this to bear, highlighting that the Southeast accounted for more than two-thirds of all job growth across the U.S. since early 2020.

These 3 forces improving in office utilization.

Brendan Maiorana: To that end, we signed 102 leases in the second quarter, with expansions outpacing contractions almost three to one. Net effective rents averaging $19.30 a square foot, with an average payback of 17.2%. Of the 102 leases we signed, 42 were new, with almost 20% of those new to market. Cash and GAAP rent growth were strong at 3.6% and 17.6% respectively. Above all, we are most enthusiastic about the progress we've made and continue to make on our occupancy upside across four core assets in Atlanta and Nashville. Three of these four have completed or in the midst of completing our HIGHWOODS TIESING redevelopment program, essentially positioning them to directly compete with new construction. The fourth in Westwood South is in the highest of bear-to-entry BBDs of Brentwood in suburban Nashville, and it has a leasing prospect pipeline that would fill the building two times over.

Declining competitive Supply and strong demographics. All combined with a resilient economy are bearing fruit in our leasing activity and make us optimistic. Our strong performance will continue

To that end, we signed 102 leases in the second quarter, with expansions outpacing contractions almost 3 to 1.

2%.

Of the 102. Leases we signed.

42 were new, with almost 20% of those new to the market.

Cash and GAP. Brand growth, were strong at 3.6% and 17.6% respectively.

Above all. We are most enthusiastic about the progress we've made and continue to make on our occupancy, upside across 4 core Assets in Atlanta and Nashville.

3 of these 4 have completed or in the midst of completing our Highway, teising Redevelopment program.

Essentially positioning them to directly compete with new construction.

The fourth in Westwood South.

Is in the highest of varied entry bbds of Brentwood in Suburban Nashville.

Brendan Maiorana: Symphony Place in downtown Nashville started the quarter strong. The seven-floor lease with Nashville Mainstay and global law firm Holland and Knight was proof positive that the environment and experience we are curating there is what Nashville's best and brightest are looking for, and there are leasing prospects for over 80% of the building. While you never buy 1,000, with these prospects and inbound activity picking up in Nashville, Symphony Place is poised to deliver meaningful organic growth. The backfill update from Nashville is a good segue into Music City's broader market performance with the nation's lowest large metro unemployment rate. Cushman and Wakefield reported Nashville having the nation's third highest positive net absorption, and the market's robust demand generated almost 1 million square feet of leasing for the quarter, the highest for Nashville since the second quarter of 2021.

And it has a leasing prospect pipeline that would fill the building two times over.

Symphony Place and downtown Nashville, started the quarter strong.

The 7-floor lease with national Mainstay and global law firm Holland & Knight.

Was proof positive that the environment and experience we are curating is what Nashville's best and brightest are looking for.

And they are a leasing prospects for over 80% of the building.

While you never bought a thousand with these prospects and inbound activity picking up in Nashville.

Symphony Place is poised to deliver meaningful organic growth.

The backfield update from Nashville is a good segue into Music City's broader market performance, with the nation's lowest large metro unemployment rate.

Cushman and Wakefield reported National, having the nation's third, highest positive, net absorption and the Market's robust demand, generated almost 1 million square feet of leasing for the quarter.

Brendan Maiorana: JLL added that there are almost 2 million square feet of active requirements in the market, and with a decade-low construction pipeline delivering at 79% pre-lease and with no new startups in the foreseeable future, vacancies should decline, rents should increase, and momentum should continue. The second quarter leasing we did in Nashville led our markets for both total and new volume, had our highest dollar-weighted average lease term at nine years, and was tops with GAAP rent growth of 23.8% and cash rent spreads of 12.4%. Southeast of Nashville, Charlotte continues to be a talent magnet with new data showing that the area's daily net migration count is up from 117 a day to 157, according to the Charlotte Regional Business Alliance and where Cushman highlighted the region as one of the nation's top quarterly job generators with a 2.2% growth rate.

the highest for Nashville since the second quarter of 2021,

Jll added that there are almost 2 million square feet of active requirements in the market.

And with a decade-low construction pipeline, delivering at 79% pre-leased.

And with no new starts in the foreseeable future.

They can see should decline.

Rents should increase and momentum should continue.

The second quarter leasing, we did in Nashville. Let our markets for both Total and new volume.

At our highest dollar weighted average lease term at 9 years and was topped with gap. Rent growth of 23.8%

Cash rent, spreads of 12.4%.

Southeast of Nashville, Charlotte continues to be a talent magnet with new data showing that the areas Daily. Net migration count is up from 117 a day.

To 157.

Brendan Maiorana: Cushman also noted Charlotte's fourth consecutive quarter with leasing activity over 500,000 square feet, where over 80% occurred in the submarkets of Uptown, Midtown, and South Park. Our 2 million square foot Charlotte portfolio, which is entirely located in the Uptown and South Park BBDs, leads the way at 96.6% occupied. Our 1.2 million square foot Legacy Union Uptown portfolio sits squarely at the geographic center of Charlotte's Class AA demand and is 95% occupied, while our sixth building, 800,000 square foot portfolio in South Park, is 98% occupied. With Charlotte's construction pipeline empty and with multiple large inbounds cited by the Charlotte Alliance, not including Citigroup or Assetmark's recent significant job announcements, market vacancy and rental rates should continue to move in opposite directions. Of all of our markets, Dallas continues to be an economic juggernaut with continued job and population growth and positive net absorption.

According to the Charlotte Regional business Alliance and where Cushman highlighted the region as 1 of the nation's top quarterly job generators with a 2.2% growth rate.

Cushman also noted Charlotte's 4th consecutive quarter with leasing activity, over 500,000 square feet.

For over 80% of our current occupancy in the submarkets, Uptown, Midtown, and South Park.

Our 2 million square foot Charlotte portfolio, which is entirely located in the Uptown and South Park bbds.

Leads the way at 96.6% occupied.

Our 1.2 million-square-foot Legacy Union Uptown portfolio.

Sits squarely at the geographic center of Charlotte's class double a demand and it's 95% occupied. While our 6 building 800,000 square foot portfolio in South Park is 98% occupied

With Charlotte's construction pipeline, empty and with multiple large inbounds sided, by the Charlotte Alliance, not including City group or asset marks recent significant job, announcements Market, vacancy and rental rates should continue to move in opposite directions.

Brendan Maiorana: JLL noted that 60% of Dallas' office pipeline is build-to-street construction for Goldman Sachs and Wells Fargo, and that there are an additional 7.6 million square feet of requirements in the market. Our Dallas development pipeline is benefiting from this demand with prospect activity at both our 422,000 square foot Plano BBD Granite Park 6 development, which is currently 59% pre-lease, and our 642,000 square foot 23 Springs development in Dallas' Uptown BBD, which itself is 63% pre-lease. Also in Uptown and down the street from 23 Springs is our 557,000 square foot in-service asset McKinney & Olive, which is over 99% leased. I would be remiss if I didn't share highlights from Tampa, both as a market and from our portfolio's perspective.

Of all of our Markets, Dallas continues to be an economic juggernaut with continued job and population, growth and positive net absorption.

JLo noted that 60% of Dallas's office pipeline is build-to-suit construction for Goldman Sachs and Wells Fargo.

And that there are an additional 7.6 million square feet of requirements in the market.

Our Dallas development pipeline is benefiting from this demand with prospect activity. At both our 422,000 square foot properties.

Plano BBD. Granite Park 6 development.

Which is currently 59% pre-lease.

And our 64,200 square foot, 23 Springs development in Dallas's Uptown DBD, which itself is 63% pre-leased.

Which is over, 99% least.

Brendan Maiorana: CBRE led this quarter's Tampa market report with a headline that reads, "A positive path ahead as the office market builds on Q1 surge." The report noted that Tampa posted its fifth consecutive quarter of positive net absorption, and the pipeline for continued positive absorption is healthy, with 1.3 million square feet of future tenant move-ins tied to already executed leases. With an additional 1.4 million square feet of active prospects and one of the lowest market-wide vacancies in the nation per CBRE, we are very pleased with our market activity and where we ended the quarter at 86.1% occupied, but more than 92% leased. Our Midtown East development recently delivered 40% pre-leased and has strong prospects for another 40% of the building.

I would be remissed if I didn't share highlights from Tampa both as a market and from our portfolios perspective,

CBRE LED this quarter's Tampa market report with a headline that reads.

A positive path ahead as the office market builds on Q1 surge.

The report noted that Tampa posted its fifth consecutive quarter.

Of positive net absorption.

And the pipeline for continued. Positive absorption is healthy with 1.3 million square ft of future tenant, move-ins tied to our ready executed leases

With an additional 1.4 million square feet of active prospects, and 1 of the lowest Market wide, vacancies in the nation per CBR.

We are very pleased with our Market activity and where we ended the quarter at 86.1% occupied but more than 92% least.

Brendan Maiorana: Underwritten to stabilize in the second quarter of 2026, Midtown East was the only building under construction the better part of two years and is the tallest building in the West Shore BBD and in the heart of Midtown Tampa's thriving mixed-use district, anchored by Whole Foods, two hotels, and luxury apartments. With a commute-worthy portfolio and a trophy asset team, Highwoods is creating compelling environments and experiences that are giving our customers a competitive advantage in recruiting and retaining the very best. This advantage is recognized in our activity and economics, and we are steadfast in our conviction that great value is created when the best and brightest are better together. Brendan? Thanks, Brian. In the second quarter, we delivered net income of $18.3 million, or 17 cents per share, and FFO of $97.7 million, or 89 cents per share. The quarter included three atypical items.

Our Midtown East element was recently delivered, is 40% pre-leased, and has strong prospects for another 40% of the building.

Underwritten to stabilize and the second quarter of 2026.

Midtown east was the only building on the construction. The better part of 2 years and is the tallest building in the West Shore BBD and in the heart of Midtown Tampa's thriving mixed-use District.

Anchored by Whole Foods, 2 hotels and Luxury Apartments.

With a commute worthy portfolio in a trophy asset team.

I would just be creating compelling environments and experiences that are giving our customers a competitive advantage in recruiting and retaining the very best.

This Advantage is recognized in our activity and economics and we are steadfast in our conviction that great value is created when the best and brightest Are Better Together. Brendan

Brendan Maiorana: First, we received $3 million from the Florida Department of Transportation for the impact of roadway improvements adjacent to a non-core property in Tampa. This payment, which is reflected in other income, was expected and has been included in our FFO outlook since the beginning of the year. Second, we received $1 million of term fees. The largest was attributable to a customer where we proactively took back space early and have subsequently re-let this space to a new user with a long-term lease. This term fee temporarily boosted 2Q earnings but will be offset by downtime at the property. Third, we wrote off nearly $1 million of pre-development costs at sites where we no longer believe office to be the highest and best use. Otherwise, this was a very straightforward quarter. We are pleased with our results, which demonstrate the resiliency of our operations and cash flows.

Thanks. Brian. In the second quarter we delivered net income of 18.3 million or 17 cents per share and ffo of 97.7 million or 89 cents per share the quarter included 3 atypical items. First, we received 3 million dollars from the Florida Department of Transportation for the impact of roadway improvements adjacent to a non-core property in Tampa, this payment, which is reflected. In other income was expected and has been included in our ffo Outlook since the beginning of the year.

Second, we received a million dollars of term fees. The largest was attributable to a customer where we proactively took back space, early and have subsequently re-let this space to a new user with a long-term lease, this term fee, temporarily boosted 2q earnings but will be offset by downtime at the property.

Third, we wrote off nearly a million dollars of pre-development costs at sites where we no longer believe office to be the highest and best use.

Otherwise this was a very straightforward quarter. We are pleased with our results, which demonstrate the resiliency of our operations and cash flows.

Brendan Maiorana: Our balance sheet remains in excellent shape. Our debt-to-EBITDA ratio was 6.3 times at quarter end. We only have $106 million left to fund on our development pipeline and are currently maintaining over $700 million of available liquidity. Our only debt maturity over the next 18 months is a $200 million variable rate term loan that is scheduled to mature in May 2026. Discussions with our bank group have been very positive, and we remain comfortable in our ability to extend this loan. As Ted mentioned, we have updated our 2025 FFO outlook to $337 to $345 per share, which equates to a 2 cent increase at the midpoint. The underlying picture is actually stronger than the headline implies. As I mentioned earlier, the second quarter included one cent of higher G&A due to the expensing of pre-development costs that were not included in our prior outlook.

Our balance sheet remains an excellent shape. Our debt to EBA ratio was 6.3 times at quarter end, we only have 106 million dollars left to fund on our development Pipeline and are currently maintaining over 700 million dollars of available liquidity. Our only debt maturity over the next 18 months is a hundred million dollar variable rate Term Loan that is scheduled to be mature. In May 2026 discussions with our bank groups have been very positive and we remain comfortable in our ability to extend this loan

at Ted mentioned, we have updated our 2025, ffo Outlook to 337 to 345 per share, which equates, to a 2-cent increase at the midpoint,

Brendan Maiorana: Plus, we pushed two cents of interest income out of the 2025 forecast and into future years. These items have been partially offset by a one cent increase to prior year property tax refunds expected during 2025. Overall, this equates to two cents of net headwinds that were not included in our April outlook, but these have been more than offset by four cents of higher anticipated NOI, resulting in the increase of two cents per share at the midpoint. Turning to leasing and our occupancy outlook, we expect to be towards the low end of our year-end 2025 occupancy outlook of 86 to 87%, largely driven by proactively taking space back early from users where we've subsequently re-let these spaces to new users with leases that don't commence until after year-end.

The underlying picture is actually stronger than the headline implies. As I mentioned earlier, the second quarter included $1 million of higher G&A due to the expensing of pre-development costs that were not included in our prior Outlook.

Plus we pushed 2 cents of interest income, out of the 2025, forecast and into future years. These items have been partially offset by a 1% increase to Prior year property tax refunds expected during 2025,

Overall, this equates to 2 cents of net, headwinds that were not included in our April Outlook. But these have been more than offset by 4 cents of higher anticipated. Noi resulting in the increase of 2 cents per share at the midpoint.

Brendan Maiorana: This activity, while reducing near-term occupancy, secures additional long-term tenancy across our portfolio and reduces our rollover risk in future years. We also proactively took back 35,000 square feet early from a user to secure a long-term lease extension on their remaining 70,000 square feet on an as-is basis. Finally, we have one user that we originally expected would be able to take occupancy of their 50,000 square feet in the fourth quarter, but we now expect this lease to commence in the first quarter of 2026. These timing issues have moved 130,000 square feet of previously projected occupancy at year-end 2025 into the future. Lastly, I want to review in more detail the performance of the core four operating properties with meaningful occupancy upside that Ted highlighted, as well as our development properties.

driven by proactively taking space back early from users where we've subsequently re-let these spaces to new users with leases that don't commence, until after year end,

This activity while reducing near-term occupancy. Secours, additional long-term tenancy across our portfolio and reduces our role of a risk in future years. We also proactively took back, 35,000 square feet early from a user to secure, a long-term lease extension on their remaining 70,000 square feet on an Asus basis.

Finally, we have 1 user that we originally expected would be able to take occupancy of their 50,000 square feet in the fourth quarter. But we now expect this lease to commence in the first quarter of 2026.

These timing issues have moved 130,000 square feet of previously, projected occupancy at year end, 2025 into the future.

Brendan Maiorana: At the beginning of the year, we called attention to 25 million of embedded annual NOI growth potential upon stabilization of the core four. At that point, we had locked in 5 million of this future upside with signed leases. Today, this number is now up to over $12 million, and we have strong prospects for another $5 to $6 million. Our two 2023 development deliveries, Granite Park 6 and Glenlake 3, have over $10 million of annual NOI growth potential upon stabilization, over 6 million of which has been secured with signed leases, up from 4 million at the beginning of the year. The two developments that delivered earlier this year, 23 Springs and Midtown East, have over 20 million of annual NOI growth potential upon stabilization.

Lastly, I want to review in more detail. The performance of the core 4, operating properties with meaningful occupancy upside, the Ted highlighted as well as our development properties. At the beginning of the year, we called attention to 25 million of embedded. Annual noi growth potential upon stabilization of the core 4, at that point, we had locked in 5 million of this future upside with signed leases today. This number is now up to over 12 million dollars.

And we have strong prospects for another $5 to $6 million.

Brendan Maiorana: We have secured 14 million of this upside with leases that will commence in the future, up from 11 million at the beginning of the year, plus we have strong prospects for another $3 million. In total, these eight properties have over 55 million of annual NOI growth potential above our 2025 outlook. We have locked in over 60% or more than $33 million of this upside with leases that have been signed but are not contributing to 2025, plus we have strong prospects for another $9 million. To be clear, it will take time for these signed leases to come online. We are also still capitalizing interest and operating expenses at 23 Springs and Midtown East as these two development projects delivered earlier this year, so not all of the NOI from those two assets will be realized in future FFO or operating cash flow.

Our two 2023 developments, deliveries Granite Park 6 and Glen Lake 3, have over $10 million of annual NOI growth potential upon stabilization, over $6 million of which has been secured with signed leases, up from $4 million at the beginning of the year. The two developments that delivered earlier this year, 23 Springs Inn and Midtown East, have over $20 million of annual NOI growth potential upon stabilization. We have secured $14 million of this upside with leases that will commence in the future, up from $11 million at the beginning of the year. Plus, we have strong prospects for another $3 million in total. These eight properties have over $55 million of annual NOI growth potential above our 2025 Outlook.

we have locked in over 60%, or

Brendan Maiorana: However, the leasing activity is encouraging, and we expect all of the leases signed to date to commence by late 2026, which gives us confidence about the trajectory of earnings and cash flow as we move into 2026 and even into 2027. To wrap up, we're ahead of our expectations in terms of executing on our embedded growth drivers with the potential to secure even more of this upside over the next few quarters. We're also encouraged at the potential to recycle additional capital and thereby further improve our long-term growth profile. Given our strong markets, BBD locations, proven operating and asset recycling strategies, and well-positioned balance sheet, we are encouraged about the next few years for Highwoods. Operator, we are now ready for questions.

More for more than 33 million of this upside with leases that have been signed, but are not contributing to 2025. Plus, we have strong prospects for another 9 million dollars to be clear. It will take time for these signed leases to come online. We are also still capitalizing interest in operating expenses at 23 Springs and midtown east as these 2. Development projects delivered earlier this year. So not all of the noi from those 2 assets will be realized in future ffo or operating cash flow. However, the leasing activity is encouraging and we expect

all of the leases signed to date to commence by late 2026, which gives us confidence about the trajectory of earnings and cash flow as we move into 2026 and even into 2027,

To wrap up. We're ahead of our expectations in terms of executing on our embedded, growth drivers with the potential to secure. Even more of this upside over the next few quarters.

Or also encouraged at the potential to recycle additional capital and thereby further improve our long-term growth profile.

Operator: If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We'll pause here briefly as questions register. First question is from the line of Peter Abramowicz with Jefferies. If you want to, is that open?

Given our strong markets, BBD locations, proven operating and asset recycling strategies, and well-positioned balance sheets, we are encouraged about the next few years. For Highwoods operator, we are now ready for questions.

If you would like to ask a question, please press star, followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please. Press star. Followed by 2 again to ask a question, press star, 1 as a. Reminder, if you using a speaker-phone, please remember to pick up your handset before asking your question, we will pause here briefly as questions register.

First question is from the line of Peter abramowitz with Jeffrey. She has now open

Ted Klinck: Yes. Thank you for taking the question. just wanted to, to kind of dig into, the the guidance a little bit. so you you had a kind of significant beat, in the second quarter here, and you had a kind of big other income, item. Just just wondering kind of, you know, what else went into the guidance that, it didn't necessarily flow through to a a slightly larger raise? Is is there a degree of kind of conservatism still in there and and kind of your expectations for for the back half?

Yes, thank you for taking the question. Um, just wanted to uh to kind of dig into uh the guidance a little bit. Um,

So you you had uh, kind of significant beat uh, in second quarter here and you had a kind of big other income uh, item. Just just wondering kind of, you know, what else, went into the guidance that um, it didn't necessarily flow through to a, a slightly larger raise, is, is there a degree of kind of conservatism still in there and, and kind of your expectations, for for the backup?

Brendan Maiorana: Hey, Peter. It's Brendan. I'll try to take that. so I would say that, I think, as I kind of mentioned in the in the script, we had a we had some other items that went against us, right? So there was 3 cents of kind of headwind, I would say, in the updated outlook, that is not through the property level, not at the NOI level. So G&A is higher. We did incur that in the quarter, so that's part of the Q2 beat, I guess, relative to at least certainly street expectations. but then there were some other income or interest income that we had forecast for late in the year that we now have pushed out of that.

Brendan Maiorana: So that 3 cents of headwind, has been more than offset by, call it 5 cents of NOI upside if you include a little bit more in terms of, prior year property tax refunds. So I think you're getting 4 cents of of higher kind of NOI in those numbers that split between development NOI, and the same property pool. So I think that's all pretty good. I would say I would, maybe caution you and others to extrapolate, you know, a quarter or two, to a full-year outlook. I think what I would encourage everyone to do is kind of think about the totality of the year and then think about kind of all of the building blocks of NOI growth that we've that we laid out as you think about future periods going forward. There's always some seasonality in numbers.

Peter it's Brendan I'll try to take that. Um so I would say that um I think um as I kind of mentioned in the in the script um we had a we had some other items that went against us, right. So there was 3 cents of kind of headwind, I would say in the updated Outlook, um that is not through the property level not at the noi level. So GNA is higher, we did incur that in the quarter so that's part of the Q2 beat I guess um relative to at least certainly Street expectations. Um but then there were some other income or interesting income that we had forecast for late in the year that we now have pushed out of that. So that 3 cents of headwinds um has been more than offset by um call it 5 cents of nli upside. If you include a little bit more in terms of um prior year property tax refunds, so I think you're getting 4 cents of of higher kind of noi in those numbers that's split between development. Noi, um and the same

Property pool. So, I think that's all pretty good. I would say I would, um, maybe caution you and others to extrapolate, you know, a quarter or two, um, to a full year outlook. I think what I would encourage everyone to do is kind of think about the totality of the year and then think about kind of all of the building blocks of NOI growth that we've laid out as you think about future periods going forward. There's always some.

Brendan Maiorana: There's moving of expenses that can move from one quarter to another. So I think if you extrapolate one quarter to another, it can kind of lead to a false positive or a false negative.

Seasonality and numbers—there's movement of expenses that can shift from one quarter to another. So I think if you extrapolate one quarter to another, it can kind of lead to a false positive or a false negative.

Ted Klinck: All right. That's helpful. Thanks, Brendan. And then could you talk about kind of the opportunity set for acquisitions in your markets right now? kind of what what you'd be targeting potentially from a return perspective, whether billion yields or longer-term IRRs? and does it seem like activity has kind of picked up since maybe it slowed down, post-Liberation Day announcements?

All right, that's helpful. Thanks, Brandon. And then, could you talk about just kind of the opportunity set for Acquisitions in your markets right now. Um, kind of what what you'd be targeting potentially from a return perspective, whether going in yields or or longer term IRS, um, and does it seem like activity is kind of picked up since maybe it's slowed down? Um, Post deliver Liberation day announcements

Brian Leary: Hey, Peter. It's, Ted. I'll I'll take that one. Look, I think you nailed it. capital markets are definitely starting to open up a little bit. We're starting to see more high-quality assets come to market. I think the bid-ask spread is narrowing. you know, debt capital markets are opening up, so the availability of debt for office acquisitions is better today than what it was earlier in the year and certainly last year. Equity capital is coming off the sidelines. And I think they're actually underwriting office again and not, and they're being more constructive on the underwriting. So I think sellers have been waiting for this, and they're starting to bring assets to market, and some of which are our wishlist assets. So, a lot more in the market, a lot of higher-quality assets. Some of those are core, some are value-add, some are core plus.

Brian Leary: So we look at everything, and we're going to price it based on our evaluation of risk, and certainly from a return standpoint, it'll be based on the risk-adjusted yield. So, again, we look at everything, and but we are starting to see some attractive opportunities that are that we've been sort of waiting for.

Uh, hey Peter. It's uh, Ted. I'll I'll take that 1, look, I think you nailed it. Uh, Capital markets are definitely starting to open up a little bit. We're starting to see more high-quality assets come to Market. I think the bid ask spread is narrowing, um, you know, debt Capital markets are opening up so the availability of debt for office, Acquisitions is better today than what it was earlier in the year. And certainly last year Equity capitals, come the off, the sidelines. I think they're actually underwriting office again and not and they're being more constructive on the underwriting. So I think sellers have been waiting for this and they're starting to bring assets to Market and some of which are are wish list assets. So, um, lot more in the market, a lot of higher quality assets. Some of those are core. Some are value, add, um, some are core Plus so we look at everything.

And we're going to price it based on our evaluation of risk and certainly from a return standpoint, it'll be based on the risk adjusted yield. So again, we look at everything and but we are starting to see some attractive opportunities that are that, that we've been sort of waiting for

Ted Klinck: All right. Thank you.

All right. Thank you.

Operator: Thank you for your question. Next question is from the line of Seth Berge with City. Your line's now open.

Thank you for your question.

Next question is from the line of Seth Bergie with City. Here has an open

Analyst: Hi. Can you talk a little bit about your expectations for, just concessions and TI for some of the leasing that you've done in the quarter?

Can you talk a little bit about your expectations for, um, just confessions and TI for some of the leasing that you've done in the quarter?

Brian Leary: Yes, Seth. It's Ted. You know, from a leasing perspective, as you know, we had another really strong leasing quarter. Our tour activity remains strong. You know, it's the same trends we've seen for a while, continuing to see a flight to quality, flight to capital, flight to amenities, flight to location. Same thing we've seen now for several years. You know, our leasing CapEx, it's been, you know, I think we're leveling off. I think we certainly peaked. You know, our net effective rents were incredibly strong this quarter. So our concessions, while it varies by submarket and market, we've got some very strong submarkets where we're seeing concession packages come down, in addition to rates going up. You know, it's still high in submarkets, so. But overall, I think if you if you have a mix, it's going to jump around a little bit quarter to quarter.

Uh, yes, Seth it's Ted. Um, you know, from a leasing perspective is, you know, we had another really strong leasing quarter, our tour activity remained, strong, you know, it's the same Trends we've seen for a while continuing to see a flight to Quality flight to Capital flight, to amenities flight to location. Same thing we've seen now for several years, um, you know, our leasing capex. It's been, you know, I think we've, we're leveling off. I think we certainly piqued. Um, you know, our net effective rents were incredibly strong this quarter. So our concessions while it's buried by submarket and Market I mean we've got some very strong submarkets where we're seeing concession packages come down. Uh in addition to rates going up, you know it's still high in

Brian Leary: But in general, I think it's fair to say concessions have generally peaked, and market rents are going up. So it should bode well for net effective rents.

Markets. So but overall I think if you if you have a mix that's going to jump around a little bit quarter to quarter but in general, I think it's fair to say concessions, have generally peaked. Um in Market rents are going up so it should bode well for net effective rents.

Analyst: Great. Thanks.

Great, thanks.

Brian Leary: Thank you.

Operator: Thank you for your question. Next question is from the line of Rob Stephenson with Janie. Your line's now open.

Thank you. Thank you for your question.

Rob Stevenson with Danny, you don't want to open.

Rob Stephenson: Good morning, guys. Just to ask the last question in a different way, given all the leasing, when you take a look at the, you know, the building improvements, second-gen tenant improvements, and leasing commissions, is there a spike that we should be expecting, in a couple of the upcoming quarters given when this stuff hits, or is that sort of low 40 millions a quarter that you've been averaging, you know, for the last few years been about where it's going to wind up being on a sort of smoothed-out basis?

Uh, good morning guys. Uh

Especially in a different way, given all the lead.

You know, the building improvements second gen tenant, improvements and leasing commissions. Is there a spike that we should be expecting um in a couple of the upcoming quarters given when this stuff hits or is that sort of low 40 million, a quarter that you've been averaging you know for the last few years been about where it's going to wind up being on a sort of smoothed out basis.

Brendan Maiorana: Hey, Rob. It's Brendan. I'll I'll take that one or at least start. I think what I would say is, you've probably seen the the commission levels, I think, have been high because of the volume, and those get paid more quickly than the TIs get dispersed. so you've probably seen it kind of show up in commissions, I would say, last year when leasing volumes were very high, particularly new, and in the first half of this year as well. for TI dollars, I would say that I think your question is is a good one. I think we're going to remain at elevated levels, in 20. We were there last year. I think it's probably likely to be a little bit higher in 2025, and probably a little higher, than where we were in the first half of the year.

Hey Rob. It's Brandon. Um, I'll I'll take that 1 or at least start. Um, I think what I would say is, um, you've probably seen the, the commission levels. I think are have been high because of the volume. And those get paid more quickly than the TI's get dispersed. Um, so you've probably seen it kind of show up in commissions. I would say last year when leasing volumes were very high particularly new. Um, and in the first half of this year as well, um, for TI dollars, I would say that I think your question is is a good 1. I think we're going to remain at elevated levels. Um,

Brendan Maiorana: And we think in all likelihood it will remain there in 2026 as well as we kind of keep this occupancy build going for the next several quarters. So we do think it's going to be elevated, I would say, not dramatically higher than where we were over the past, year or so, but I would say that, I do think it's going to be high for the remainder of this year and in all likelihood next year as well.

Rob Stephenson: Okay. That's incredibly helpful. Thank you. And then, I guess, Brendan, at this point in the year with a bunch of line items more or less locked in, what's the biggest swing factors between you guys hitting the sort of 337 versus the 335? What's the biggest unknown for you at this point to keep the guidance range that wide?

In 20, we were there last year. I think it's probably likely to be a little bit higher in 2025, um, and probably a little higher, um, than where we were in the first half of the year. And we think in all likelihood, it will remain there in 2026 as well as we kind of keep this occupancy. Build going for the next several quarters. So we do think it's going to be elevated. I would say not dramatically higher than where we were over the past, um, year or so. But I would say that, um, I I do think it's going to be high for the remainder of this year and in all likelihood next year as well.

Okay, that's incredibly helpful. Thank you. And then, um, I guess Brennan, at this point in the year, with a bunch of line items more or less locked in, what's the biggest swing factor between you guys hitting the sort of $337 million versus the $335 million? What's the biggest unknown for you at this point to keep the guidance range that wide?

Brendan Maiorana: Yeah, it's probably so there's probably a couple of, expense items, timing-related things that are in there. So I would say that there's there's a little bit of that, variability within within the guide. So that's in there. and then to the extent that we do anything that's meaningful, that we have done a little bit of this year, which is proactively kind of take space back early, and for long-term benefits. So we've done that a few times. I think I highlighted some of that in the prepared remarks, that we've done. There's there's some of that which could happen as well, with some conversations that are out there. And then we've got a little bit of what I would say are probably, a little bit of variability in terms of lease spec lease that's out there. There's some renewals that could could happen or could not.

Um,

Yeah, it's probably. So, there's probably a couple of, um, expense items, timing-related things that are in there. So, I would say that there's a little bit of that variability within the guide, so that's in there. Um, and then to the extent that we do anything that's meaningful, um, that we have done a little bit of.

This year, which is proactively kind of takes space back early, um, and.

For long-term benefits. So we've done that a few times. I think I highlighted some of that in the prepared remarks um that we've done. There's there's some of that which could happen as well um, with some conversations that are out there and then we've got a little bit of what I would say are probably, um,

Brendan Maiorana: So there's a little bit of positive and negative on the lease side, but for the most part, I would say it's probably around expense timing, but, you know, probably not a huge amount of variability in terms of where we are now, as as you point out, where we sit in the year.

Rob Stephenson: Okay. And is it safe to say that given the timing that any acquisitions or dispositions at this point of any material amount would probably wind up being, you know, sort of mid to late fourth quarter, in terms of sort of being able to be closed at that point in time and so not really impacting numbers at this point very much?

A little bit of variability in terms of lease spec lease that's out there. There are some renewals that could happen or could not. So there's a little bit of positive and negative on the lease side, but for the most part, I would say it's probably around expense timing. You know, probably not a huge amount of variability in terms of where we are now. As you point out, where we sit in the year.

Okay. And is it safe to say that given the timing that any Acquisitions or dispositions at this point of any material amount would probably wind up being, you know, sort of mid to late, fourth quarter, um, in terms of sort of being able to be closed at that point in time. And so not really impacting numbers at this point very much

Brendan Maiorana: Yeah.

Rob Stephenson: Is there still an opportunity for you guys to do stuff of materiality?

Um, yeah, it's still an opportunity for you guys to do stuff of materiality.

Brendan Maiorana: Yeah. So just to be clear, the any acquisitions or dispositions are not included in in kind of the range. So that would be outside of the range. But to the extent of where we sit in the year, the likelihood of an acquisition or a disposition having a meaningful impact on numbers, is probably fairly low. I think that's fair.

Rob Stephenson: Okay. And then you talked about the term loan, that you thought that you'd be able to extend that. Is that the sort of most attractive sort of slash cheapest form of debt capital for you guys at this point in time?

Yeah, so just to be clear, the acquisitions or dispositions are not included in the kind of the range that would be outside of the range. But to the extent of where we sit in the year, the likelihood of an acquisition or a disposition having a meaningful impact on numbers is probably fairly low. I think that's fair.

Okay, and then you talked about the term loan, um, that you thought that you'd be able to extend. That is that the sort of most attractive sort of Slash cheapest form of debt capital for you guys at this point in time,

Brendan Maiorana: I don't know that I would characterize it as the most attractive, cheapest form of capital that's available, but we like to have diversity in the debt stack that's there, and that's a good source of capital for us given that, it's variable. If we do have a lot of disposition proceeds at any point in time, that becomes freely prepayable. and we like to have a little bit of variable rate in the stack because, you always just want to kind of diversify the risks in there in terms of your interest rate exposure. So I think for all those reasons, it's an efficient source of capital. I don't know if I would necessarily characterize it as the cheapest form of capital.

um,

I don't know that I would characterize it as the most attractive.

That's and that's a good source of capital for us given that. Um, it's variable if we do have a lot of disposition proceeds at any point in time that becomes freely prep payable. And we like to have a little bit of variable rate in the stack because, um, you always just want to kind of diversify the risks in there, in terms of your interest rates exposure. So I think for all those reasons it's an efficient source of capital. I don't know if I would necessarily necessarily characterize it as the cheapest form of capital.

Rob Stephenson: Okay. Thanks, guys. Appreciate the time this morning.

Okay.

These guys appreciate the time this morning.

Operator: Thank you for your question. Next question is from the line of Nick Thilleman with Baird. Your line's now open.

Thank you for your question. Next question is from the line of Nick dilman with Barrett. You want to open

Nick Thillman: Hey, good morning, guys. Maybe, maybe Ted, we'll start off with this. Obviously, COVID and kind of the pandemic transferred a lot of, just conversations on flight to quality and the type of assets. Kind of curious, have you taken a look at potential impacts of AI on demand? And that impacts longer term, the type of assets you guys want to own, whether it be individual submarkets or size of buildings, and kind of how you guys are evaluating that as it's still early days, but just longer-term sort of view.

Hey, good morning, guys. Maybe, uh, maybe Ted we'll start off with this. Obviously, COVID and kind of the pandemic transferred a lot of just conversations on flight to quality and the type of assets. I'm kind of curious if you've taken a look at potential impacts of AI on demand and that impacts, longer term, the type of assets you guys want to own, whether it be individual submarkets or size of buildings, and kind of how you guys are evaluating that. Is it still early days, but just a longer-term sort of view?

Brian Leary: Yeah. Look, it's definitely early days, right? I mean, obviously, the demand side, the West Coast has seen a lot of demand for AI companies. so that's been great for them. In terms of us, look, very early on, I think, you know, companies are obviously, I think every company in America is probably looking at how impact how AI may impact their business going forward. But look, we've been through this before, whether it be on densification. you know, I remember 20 years ago, law firms were going to be reducing their space by a significant percentage because of the law libraries and all the other things they didn't need. So we've been through different challenges, I think, as an office industry for several years, and, and, we've been able to manage through it and get, as as the markets continue to grow.

Brian Leary: So AI, I don't know what the answer is, right now, but I will take those. At least a little early days.

Yeah. Look, it's definitely early days, right? I mean, obviously the demand side, the west coast is seeing a lot of demand for AI companies. Um, so that's been great for them in terms of us look very early on, I think, you know, companies are obviously, I think every company in America is probably looking at how impact, how AI may impact their business going forward. But look, we've been through this before whether it be on densification, um, you know, I remember 20 years ago, law firms were, were going to be reducing their space by a significant percentage because of the law libraries and all the other things, they didn't need. So we've been through different challenges. I think as an office industry for several years and and uh what we've been able to manage through it and get uh as as the markets continue to grow. So AI, don't know what the answer is uh right now.

Nick Thillman: Okay. And then just a question on you guys are kind of through a lot of the large, like, expirations you had within the portfolio. I guess, what do you guys kind of view as like a normalized run rate when it comes to retention as we look at expirations into the next 18 to 24 months?

Okay.

And then just question on you guys are kind of through a lot of the large, like, expirations, you had within the portfolio of, I guess what, what do you guys kind of view as like a normalized run rate when it comes to retention as we look at expirations into the next 18 to 24 months?

Brendan Maiorana: Hey, Nick. It's Brendan. I'll take that. So we always struggle a little bit answering this question. I think when you look at early renewals that get done and you kind of think about a full cycle, our retention level tends to be, call it, kind of 60 to 65 percent. I think if you're looking at expirations that are going to occur kind of over the next, 12 to 18 months, those numbers go down because, you've got, you know, anti, adverse selection bias that's in kind of, in the rent roll because you obviously don't early renew customers that are ultimately going to move out. so I would say if you think about, you know, the next 18 months, so from where we are now through the end of 2026, we really, as you point out, have kind of worked through those large known move-outs.

Brendan Maiorana: And I think the retention level that we have from here kind of through the end of of next year is probably in that, 45 to 50 percent range if I kind of had to to to give you a number that, on a range. And that's probably a little bit higher than where we've been historically and certainly much higher than where we were over a 12 or 18-month period if you look at the preceding 12 to 24 months. So I think that gives us confidence that we're well set up to build occupancy as we go forward over the next 18 months or so.

Hey Nick it's Brendan um I'll take that. Um so we always struggle a little bit answering this question. I think, when you look at early renewals that, get done and you kind of think about a full cycle, our retention level tends to be, call it kind of 60 to 65%. I think if you're looking at expirations that are going to occur kind of over the next um, 12 to 18 months, those numbers go down because, um, you've got, you know, anti-, um, adverse selection bias that's in, kind of, um, in the rent roll because you obviously don't early, renew customers that are ultimately going to move out. Um, so I would say if you think about, you know, the next 18 months. So from where we are now through the end of 2026, we really, as you point out, have kind of worked through those large known move outs and I think the retention level that we have from here. Kind of through the end of of next year, is probably in that, um, 45.

To 50% range if I kind of had to to to give you a number that um, on a range. And that's probably a little bit higher than where we've been historically and certainly much higher than where we were over a 12 or 18 month period, if you look at the preceding 12 to 24 months. So I think that gives us confidence that we're well set up to build occupancy as we go forward over the next 18 months or so.

Nick Thillman: Very helpful. That's it for me. Thanks.

Very helpful. That's it for me, thanks.

Operator: Thank you for your question. Next question is from the line of Dylan Brzezinski with Green Street Advisors. Your line's now open.

Thank you for your question.

Next question is from the line of Dylan Berzinski with Green Street Advisors. The line is now open.

Analyst: Morning, guys. Thanks for taking the question. appreciate the comments on sort of the demand backdrop and how things are improving. But are you able to talk about sort of, you know, how that demand backdrop differs across your guys' market footprint? Are there any markets in which you guys have a portfolio concentration in that are experiencing an outsized demand versus others?

Morning guys. Thanks for taking the question. Uh, appreciate the comments on sort of the demand backdrop and how things are improving. But are you able to talk about sort of, you know, how that demand backdrop differs across your guys' Market footprint? Are there any markets which you guys have a portfolio of concentration in that are experiencing outside of Demand versus others?

Brian Leary: Look, Dylan, I think certainly Charlotte, Dallas, and Nashville, if you had to rank our markets, it'd be 1A, 1B, and 1C. All three of those markets are, outperforming. You know, we're very well leased in Charlotte, so we're not able to move occupancy. But if you just think about the core four that we've talked about now for the last couple of quarters, three of the four of those are in Nashville, and we're making significant progress, certainly well ahead of our business plan on what we thought. So the demand, in Nashville continues to be really strong. And then what we're seeing in Dallas, on our development projects and and just the inbound and net migration to Dallas has been extremely strong, specifically to the submarkets we're in. So we love the demand in those three markets in particular.

Brian Leary: but at the same time, Tampa's performing very, very well. Brian talked about it on the on our prepared remarks. We're seeing a lot of great demand there. So I'd say it's pretty broad-based, and certainly concentrated in those four markets, but broad-based in general.

Brendan Maiorana: Hey, Dylan. Brian here. I might just add, Charlotte, I think I mentioned it in the remarks, you know, Citigroup and Assetmark announced in aggregate over 700 new jobs. And that's, you know, financial services, and so that's pretty well expected for Charlotte. I think they've done a great job of kind of capturing that. But, the Charlotte Regional Alliance, which is sort of the evolution of the chamber, they recently highlighted there's six inbounds, that Charlotte's looking at. Only one of those inbounds currently has a US headquarters. so this is not just inbound domestically, even inbound internationally. And those six represent about 5,000 office, you know, using jobs.

Occupancy. But if you just think about the core 4 that we've talked about now for the last couple quarters, 3 of the 4 of those are in Nashville and we're making significant progress. Certainly well ahead of our business plan on what we thought. So the demand, uh, in National continues to be really strong and then what we're seeing in Dallas uh on our development projects and and just the inbound and net. Migration to Dallas has been extremely strong specifically to the submarkets we're in. So we love the demand in those 3 markets in particular. Uh but the same time Tampa's performing very very well Brian. Talked about on the preferred on our prepared remarks, we're seeing a lot of great demand there, so I'd say it's pretty broad-based. Um, and certainly concentrated in those 4 markets, but broad-based in general,

Hey Dylan. Brian here. I might just add, uh, Charlotte. I think I mentioned it in the remarks. You know, City group and asset Market announced an aggregate over 700 new jobs and that's, you know, a financial services. And so that's pretty well, expected for Charlotte. I think they've done a great job of kind of capturing that but, um, the Charlotte Regional Alliance, which is sort of the evolution of the chamber there recently, highlighted, there's 6 in bounds, um, that Charlotte's looking at only 1 of those inbounds currently has a US headquarters. Um, so this is not just inbound domestically even inbound internationally.

Brendan Maiorana: and then I also sort of mentioned this net migration, daily net migration, and this is, you know, sort of maybe silly math if you think about it, but adding almost another 50 people a day over a year, it's close to 14,000 new people. I mean, you can just figure out what the impact is in terms of the demand there. So I think that's a good one. And then Dallas, Ted mentioned, there's seven and a half, over seven and a half million square feet of requirements in the market. Now, Dallas is a huge market, but where we're focused, we're getting great demand there. Nashville's got almost 2 million square feet of active requirements in the market. Many, kind of code name multi-market. the CBD was the most active, submarket this last quarter.

And those 6 represent about 5,000 office, you know, using jobs.

And then I also sort of mentioned this net, migration Daily, net migration and this is you know sort of maybe silly math if you think about it. But adding almost another 50 people a day over a year. It's close to 14,000 new people. I mean you can just figure out what the impact is in terms of the demand there. So I think that's a good 1 and then Dallas had mentioned, There's 7 and a half over 7 and a half million square feet of requirements in the market. And the Dallas is a huge Market.

Brendan Maiorana: And Ted highlighted, Tampa is over a million of active prospects in Tampa as well. And we're really happy with the inbounds we've seen at our development there, some really kind of blue-chip names, looking at investing in the best space in Tampa.

Um, but where we're focused, um, we're getting great demand, their Nashville's got almost 2 million square feet of active requirements in the market, many, um, kind of code name multim Market. Uh, the CBD was the most active, uh, submarket. This last quarter and 10, high Tampa is over a million of active prospects and Tampa as well. And we're really happy with the inbounds we've seen at our development there. Some really kind of Blue Chip names, um, looking at investing in the best space in Tampa,

Analyst: Appreciate that cover, guys. And then, Ted, I think you mentioned, obviously, development pipelines across your markets are shrinking significantly, and no new ground-up construction is likely to start given, you know, how how pressured development economics are today. could you sort of help sort of frame that in terms of where you think replacement rents would need to be, versus where market rents are today?

Appreciate that color guys. And then Ted, I think you mentioned, obviously development pipelines, across your markets are shrinking significantly and and no new ground up construction is likely to start giving, you know, how how pressured development economics are today. Uh, because you sort of helped sort of frame that in terms of where you think replacement rates would need to be, uh, versus where Market rents are today.

Brian Leary: I think it certainly varies by market, right? The differential, the closest market we are to new development is probably Dallas, right? I think Dallas is proving out whether it be an Uptown in the Knox Henderson area, Preston Center, those three submarkets in particular in in Dallas are are probably at or approaching cost-justified rents. outside of that, you know, most of our markets is probably 20 to 40 percent off, and that's new development today where rates they're getting versus what you'd need to build something more. You know, the last few years when the starts haven't been, been, been all that high, the construction costs have continued to go up. You'd think they'd level off, but they have continued to go up. So the rents you need, and that's whether it be hard costs, financing costs, what have you.

Brian Leary: so the rents you need are, you know, quite a bit higher than what they are in the existing development pipelines. So, again, varies by market, but it's it's a pretty big delta.

I think it's uh certainly varies by market write the differential the closest market. We are to new developments probably Dallas, right? I think Dallas is proving out whether it be an uptown in the Knox Henderson area, uh, Preston Center, those 3 sub markets in particular in, in Dallas are are probably at or approaching cost Justified rents, um, outside of that. Um, you know, most of our markets is probably 20 to 40% off and that's new development today, where rates they're getting versus what you'd need to build something more. You know, the last few years, when the starts haven't been been, uh, then all that high. The construction cost of continued to go up. You'd think they'd level off, but they have continued to go up. So their rents you need and that's whether it be hard costs, financing costs. What have you? Uh, so the rents you need are, you know, quite a bit higher than what they are in the existing development pipeline. So, um, again varies by market but it's, it's a pretty big Delta.

Analyst: Great. Thanks for the cover, guys. Appreciate it.

Great. Thanks for the call, guys. I appreciate it.

Operator: Thank you for your question. Next question is from the line of Vikram Malhotra with Mizuho. Your line's now open.

Thank you for your question. Next question is from the line of Vic room, Ultra with, misao with you guys. Now open,

Analyst: Thanks for the questions. I wanted to go back, I guess, Brendan, to something you mentioned about sort of '26, given the signed but not commenced leases, or the lease rate and the benefit of that going into '26. you just mind just walking us, I'm not looking for a number, but just like what are the other kind of moving pieces, that make probably '26 visibility, either much better than you've had in the in past years, or is there some other suing factor? Just how much de-risked is '26, growth from here on?

Uh, thanks for the questions. I wanted to go back, I guess, Brandon, to something you mentioned about sort of 2026 given the signed but not commenced leases and the lease rate and the benefit of that going into 2026. Um, you just mind just walking—I'm not looking for a number, but just like, what are the other?

Kind of moving pieces, um, that make probably 26 visibility. Um, I either much better than you've had in the past years. Or is there some other suing factor to how much do you risk is 26? Uh, growth from here on?

Brendan Maiorana: Yeah. Hey, Vikram. it's a good question. it's we've obviously built a lot of embedded growth through the leasing that we've done to date. And I think if you look at the lease rate versus the occupied rate, a 330 basis point spread is is the highest that I can remember that we've had. it's certainly within the past, you know, several years that the highest spread and is more than double what the average is. So our normal lease-to-occupied spread is called 100 to 200 basis points, so 150 at the midpoint. To be more than double that is a good indicator that occupancy is likely to grow as we go forward. And a lot of those leases are signed, as you point out.

um, yeah, hey vicram um,

It's a good question. Um,

Brendan Maiorana: Now, clearly, we're assuming that the economy and the leasing market are going to hold up from here and go forward at, you know, roughly where we've been to, I think, drive and realize kind of the growth potential, as we go out into next year and beyond. so there's a little bit of of we need things to kind of continue to hold up, but we've certainly done a lot of the good legwork that's there and are well positioned to deliver on that growth. I think the way that I would think about this, and again, I know you know this, but we're not in a position to sort of talk about with any specifics in terms of numbers for next year or thereafter. we do think we have a good opportunity to grow occupancy, as we migrate late in this year and then throughout 2026.

Growth through the leasing that we've done to date. And I think if you look at the least rate versus the occupied rate of 330 basis point spread is, is the highest that I can remember that we've had um uh certainly within the past. You know, several years that's the highest spread and is more than double what the average is. So our normal least to occupied spread is called 100 to 200 basis points. So 150 at the midpoint to be more than double, that is a good indicator that occupancy is likely to grow as we go forward. And a lot of those leases are signed as you point out, now, clearly we're assuming that the economy and the leasing Market are going to hold up from here and go forward at, you know, roughly where we've been to, I think drive and realize kind of the growth potential um as we go out into next year and Beyond. Um, so there's a little bit of of, we need things to kind of continue to hold up, but we've certainly done a lot of the good leg work. That's there. And are, well,

Brendan Maiorana: So I think we've talked in the past where we would say year-end occupancy kind of 25 through 26. I think we have the opportunity to grow that 100 to 200 basis points in a fairly steady manner throughout the year. So unlike in years past where we've often had a seasonal dip early in the year and then build back, I think, you know, we're likely to see a more steady cadence of occupancy build as we go forward. beyond that, we've got some of the development deliveries that are there. So I think I talked about in the prepared remarks, where we are with, GP6 and, and, Glenlake 3. Neither of those assets are we capitalizing any costs associated with those. So as those leases commence and come online, all of that falls to the bottom line. We have the two development deliveries that were earlier this year.

Positioned to deliver on that growth. I think the way that I would think about this and again, I know you know this but we're not in position to sort of talk about with any specifics in terms of numbers for next year or thereafter. Um, we do think we have a good opportunity to grow occupancy, um, as we migrate late in this year and then throughout 2026. So I think we've talked in the past where we would say year, end occupancy, kind of 25 through 26. I think we have the

Brendan Maiorana: Those should also be additive, but we are capitalizing cost operating and interest on those two assets. So that NOI will come online and will be additive, but will be somewhat offset by some, expensing of of interest and and operating expenses compared to 2025. but all of that gives good growth potential and gives some good growth drivers over the next several quarters. and then outside of that, I would say it's more just the things that are kind of unknown. Don't expect to do a lot of financing, over the next 18 months. The balance sheet's in pretty good shape. and then it would come down to what we may do on the acquisition or disposition side.

Opportunity to grow that 100 to 200 basis points in a fairly steady manner throughout the year. So, unlike in years past where we've often have, um, a seasonal dip early in the year, and then build back, I think, you know, we're likely to see a more steady, Cadence of occupancy, build as we go forward. Um, beyond that we've got some of the development deliveries that are there. So, I think I talked about in the prepared remarks, um, where we are with, um, gp6 and and, um, Glen Lake, 3 of those assets. Are we capitalizing any costs associated with those? So as those leases commenced and come online, all of that falls to the bottom line, we have the 2 development deliveries that were earlier this year. Those should also be additive, but we are capitalizing cost operating and interest on those 2 assets. So that noi will come online and will be additive but will be somewhat offset by some um expensing of of interest and and operating it

Expenses compared to 2025. Uh, but all of that gives good growth potential and provides some good growth drivers over the next several quarters. Um, and then outside of that, I would say it's more just the things that are kind of unknown. I don't expect to do a lot of financing over the next 18 months; the balance sheet is in pretty good shape. Um, and then it would come down to what we may do on the acquisition or disposition side.

Analyst: That's helpful. And then just one more. I mean, I think the team talked a lot about these big RFPs, and you know, I think you've mentioned like four or five non-foreign, firms looking for headquarter space. One, just how competitive do you think this process is? Like, what what what sort of, competition is there from landlords to kind of win these deals? And do you mind giving us a little bit more color? Like, what what type of industry is this demand coming from, especially the foreign, entities you mentioned? Thanks.

That that's helpful and just 1 more. I mean um I think the team talked a lot about these big rfcs and you know I think you mentioned like 4 or 5 non of foreign uh firms looking for headquarter space. Um 1 just how competitive do you think this process is like what what what sort of

Uh, competition is there from landlords to kind of win these deals. Could you give us a little bit more color on what type of industries the demand is coming from, especially from the foreign entities you mentioned? Thanks.

Brendan Maiorana: Hey, Vikram. Brian here. I'll take a shot. a couple of things. They're they're all generally code-named, and what's interesting is because of the markets we're in, we will sometimes see them pop up in multiple markets. So whether it's Charlotte and Atlanta, whether it's Nashville and Charlotte, whether it's Atlanta and Raleigh. So it's interesting there. you know, in the Charlotte area, yes, there's a there's a financial services bent, but at the same time, there are some kind of, headquarter or US headquarter locations for international firms that that manufacture things that are bringing, Bayer Manufacturing, the products they build, stateside to sell kind of a domestic product made here. So I'm not sure you can necessarily, connect that to the change in, international trade. This is stuff that's kind of been working for a while.

Hey Victor and Brian here I'll take a shot uh couple things. They're they're all generally code named and what's interesting is because of the markets we're in

We will sometimes see them pop up in multiple markets. So whether it's Charlotte and Atlanta whether it's Nashville and Charlotte, whether it's Atlanta and rolly. So it's interesting there.

Um, you know, in the Charlotte area. Yes, there's a...

Financial services bent. But at the same time, there are some.

Kind of um headquarter or us headquarter locations for international firms, that that manufacture things that are bringing.

Um, they are manufacturing the products they build.

Brendan Maiorana: One thing I will say is almost all of these, the states, those same states that I mentioned are getting ranked for the best for business by CNBC. They're all at the table. And the states have incentive plans. They have partnerships. They're open for business. they are working with these companies and these site selectors. And so it's very much a public-private partnership in in every place. and then they're they're looking at the BBDs that we're in because that's when they kind of bring an external sensitivity in terms of talent. They are very much focused on exceptional experience. And so that's where we're seeing a lot of them. Unfortunately, in Charlotte, we don't have any room at the end, but, because of that, we're getting a good look and understanding who's coming in.

Um, and then they're looking at the BBDs that we're in because that's when they kind of bring an external sensitivity in terms of talent. They are very much focused on exceptional experience.

And so that's where we're seeing a lot of unfortunately in Charlotte we don't have any room at the end but um because of that we're getting a good look and understanding who's coming in.

Operator: Thank you for your question. Next question is from the line of Ronald Camden with Morgan Stanley. Your line's now open.

Brendan Maiorana: Hey, just two quick ones. Going back to the comments on the acquisition front, just digging in a little bit there, just any curiosity in terms of markets, in terms of situations, are these are these distressed? Are these funds? And and also, you may have mentioned the cap rate before, but just if you could remind us what the cap rate and IR range is. Thanks.

Thank you for your question. The next question is from the line of Ronald Camden with Morgan Stanley. You may open.

Hey just uh, 2 quick ones. Going back to the comments on the acquisition from just taking a little bit there. Just any curiosity. In terms of markets, in terms of situations are these are these distressed, um, are these funds and and also, I, I, you may have mentioned the cap rate before, but just if you can remind us sort of cap rate and our range is thanks,

Brian Leary: Sure, Ron. markets, and look, there's opportunities out there in multiple markets. you know, just I think sellers, again, have been waiting for this time for the cap office capital markets to open up. So we're seeing some high-quality assets really across our footprint, right? And, you know, the cap rates, you know, I'd tell you for a high-quality trophy core asset, well leased with a decent wallet, it's, you know, plus or minus 7 percent or so. But again, that varies by market a little bit, by the weighted average lease term, the credit, whether there's below or above market rent. So there's just a lot of variables that go into it that may cause the the cap rate to be a little bit higher or a little bit lower.

Sure Ron um markets look, there's opportunities out there in multiple markets. Um you know just I think sellers again. Have been waiting to for this time for the cap office Capital markets to open up so we're seeing some high quality assets really across our footprint, right? And you know, the cap rates, you know, I'll tell you for a high quality trophy, core asset will lease with a decent Walt. It's, you know, plus or minus 7% or so but again, that varies by market a little bit. By the way today

Brian Leary: IRRs are in the, you know, probably high high single digit, the low double digit, you know, type of range, again, depending on the market and the, and the, the specific profile of the the, the acquisition-specific deal.

Have released term the credit, whether there's below or above Market rent. So there's just a lot of variables that go into it. That may cause the the cap rate to be a little bit higher, a little bit lower IRS are in the, you know, probably high at high single digit to load, double digit, you know, type range again, depending on the market and the and the uh uh, specific profile of the, the the acquisition specific deal.

Brendan Maiorana: Great. And then my second question, just, you know, commentary about maybe the capital markets feeling a little bit better. does this mean you guys are sort of closer to sort of bringing Pittsburgh back online for a sale? potentially maybe at the end of this year, even next year, just how are you guys thinking about, sort of that market exit? Thanks.

Great. And then my second question is just a commentary about maybe the capital market feeling a little bit better. Does this mean you guys are sort of closer to bringing Pittsburgh back online for a sale? Potentially, maybe at the end of this year or even next year. Just how are you guys thinking about this?

Um, sort of that market exit. Thanks.

Brian Leary: Yeah, certainly. I do think we're closer today than what we were, you know, three months ago, six months ago, two years ago. So, so we're still waiting. We're having a lot of leasing success in Pittsburgh, so we're going to be patient and to bring it out the right time. still might be a little bit early, but we've got, you know, if you look at our dispo guidance, it's another $150 million this year. We've got a number of buildings that are out in the market right now, and others we're prepping to bring to market. So we, look, we if I had a different profile, it's a lot like what we've sold the last couple of years and the last several years. It's a mix of single-tenant, longer-term lease buildings together with some older, higher CapEx, lower growth assets as well.

Yeah, certainly, I do think we're closer today than what we were, you know, 3 months ago, 6 months ago, 2 years ago. So, um, so we're still waiting. We're having a lot of leasing success in Pittsburgh. So we're going to be patient and to bring it out the right time, uh, still might be a little bit early, but we've got, you know, if you look at our dispo guidance it's another 150 million dollars this year. We've got a number of buildings that are out in the market right now um and the others were prepping to bring the market. So we look we if I had different profiles, it's a lot like what we've sold the last couple years and the over the last several years. It's a mix of single tenant, uh longer team term, lease buildings together.

Brian Leary: So we've got, you know, a number of those out in the market that we're, we're marketing in in multiple markets. So Pittsburgh would be in that mix at the right time.

With some older higher capex, um, uh, lower growth assets as well. So we've got, you know, a number of those out in the market that we're, uh, we're Marketing in in multiple markets.

So Pittsburgh would be in that mix at the right time.

Brendan Maiorana: Great. That's it for me. Thank you.

Great. That's it for me. Thank you.

Operator: Thank you for your question. Next question is from the line of Omotarie Okusanio with Deutsche Bank. Your line's now open.

Thank you for your question.

Analyst: Hi, guys. Good morning. I just wanted to follow up on Ron's question. Again, just as you guys kind of take a look at different markets and what's happening with demand, supply fundamentals, as you kind of look at what's happening with capital markets, I'm wondering if there's any scenario where we could see you enter new markets or possibly also exit additional markets apart from Pittsburgh that you're marked for exit.

Next question is from the line of Omotayo Okusa with Deutsche Bank. You know, as I open...

I guess, good morning. Um, I just wanted to follow up on Ron's question, I guess, uh, as you guys kind of take a look at different markets and what's happening with demand Supply fundamentals, as we kind of look at what's happening with capital markets. Just wondering if there's any scenario where we could see you enter a new markets or possibly also exit additional markets apart from Pittsburgh. That's a marked for exit.

Brian Leary: Yeah, this is Ted. I'll take that. Look, I think, as you know, we've entered two markets in the last six years. We went into Charlotte in 2019, Dallas in 2021. So I would, and then we've exited three markets during that same period. So look, we're always looking at new markets. but I'd tell you right now, we're sort of pleased with our footprint. we've announced, obviously, the exit out of Pittsburgh over time, but we're we're pleased with our market selection at this time.

Analyst: Okay. That's helpful. and then also following up on Vikram's last question. again, Brendan, I appreciate all the callers in regards to how occupancy could kind of shape up over the next 18 months or so. Just kind of curious, within that, while there are no big kind of 100,000 square foot move-outs that are kind of known, could you just talk a little bit about kind of like the next level below that, like the the 50,000 to 100,000 square foot leases, and if there could be, you know, a couple of those that could kind of hinder occupancy growth?

Uh, yeah, this is Ted. I'll take that. Look, I think as you know, we've entered two markets in the last six years. We went into Charlotte in 2019 and Dallas in 2021. So, I would, and then we've exited three markets during that same period. So, look, we're always looking at new markets, um, but I'll tell you right now, we're sort of pleased with our footprint. We've announced, obviously, the exit out of Pittsburgh over time, but, um, we're pleased with our market selection at this time.

000 square foot, uh, foot leases. And if they could be, you know, a couple of those. That's the kind of hinder occupancy growth.

Brian Leary: Yeah, let me start. And if either Brian or Brendan want to jump in, look, demand we're seeing across our markets, clearly a trend we've seen the last couple of quarters is starting to see some larger, some larger users out there. But I would tell you our bread and butter is still that 5 to 15 type thousand square foot user. so, you know, we're going to pick off a floor or two here and there, but we're, you know, our bread and butter is still going to be, you know, that 5 to 15. you know, then when then when you look, and we're seeing that in most of our markets, then when you look at, you know, who's doing it, it continues to be professional service firms, the the law firms, the the the banks, the accounting firms, engineering firms, healthcare has been pretty good.

Brian Leary: That's continuing to be a good demand driver for us. And then the other thing that sort of has been slow and steady the last, several quarters we've talked about is our expansions, our net expansion activity. Just in the last four quarters, we've had, you know, 53 companies expand, 21 contract for a net of over 200,000 square feet of net absorption. and then, look, a fourth demand driver is the in-migration that Brian talked about earlier. You know, this quarter we had eight companies that are new to our markets. all of them, they weren't relocations, but they're companies that are coming to our markets, adding offices. That was another 27,000 square feet across four different markets. So it's been pretty diversified, both larger tenants, as well as, just our bread and butter.

Uh, yeah, let me start and if Brian or Brendan want to jump in, look demand, we're seeing across our markets, um, clearly a trend we've seen the last couple quarters is starting to see some larger, some larger, uh, users out there. But I would tell you our bread and butter is still that 5 to 15 type thousand square foot user. Um, so, you know, we're going to pick off a floor or 2 here and there, but we're, you know, our bread and butter is still going to be, you know, that 5 to 15. Um, you know, then when then when you, and we're seeing that in most of our markets, then, when you look at, you know, who's doing it, it continues to be professional service firms. The, the law firms, the the, the banks, um, accounting firms, engineering firms. Healthcare's been pretty good. That's continuing to be a good demand driver for us. And then the other thing that sort of has been slow and steady the last

Uh, several quarters. We've talked about, is our expansions, our next expansion activity. Just in the last 4 quarters, we've had um, you know, 53 companies, expand 21, contracts for a net of over 200,000 square feet of net absorption. Um and then it broke a fourth demand driver is the immigration.

Brendan Maiorana: Yeah, Tyo, so what I would just add to Ted's comments are just rather than kind of go space by space, kind of getting into into the weeds on things, there's always going to be customers that move out. There's always going to be customers that move in. I think in, in, I forget who asked the question, but, you know, over the next 18 months or so, you know, if we're in that kind of 45, 50 percent retention level of those remaining leases, that's 3.1 million square feet that we've got between now and year-end, and year-end 2026. if we continue at 300,000 square feet a quarter of new, that's going to replace more than replace, what the likely kind of move-outs would be, to the positive by probably 2 to 300,000 square feet.

The Brian talked about earlier, you know, this quarter, we had 8 companies that are new to our markets. All of them weren't relocations, but there are companies that are coming to our markets, adding offices. That was another 27,000 square feet across 4 different markets. So it's been pretty diversified, both larger tenants as well as just our bread and butter.

Brendan Maiorana: And then what I think is likely is you're going to see that least occupied spread narrow, and that's going to add more in terms of occupancy. So that creates the environment to drive occupancy higher. So I think that sets us up well. But again, we've got to continue to lease space, and, you know, we feel confident about that given the pipeline that's out there. But certainly, you know, there's there's a long way between now and the next six quarters.

yeah, Tio. So what I would just add to Ted's comments, are just rather than kind of go Space by space kind of getting into into the Weeds on things. There's always going to be customers that move out. There's always going to be customers that move in. Um, I think in in, um, I forget who asked the question but, you know, over the next 18 months or so. Um, you know, if we're in that kind of 4550 percentage, level of those remaining leases that's 3.1 million square feet that we've got between now and year-end. Um, and year end 2026. Um, if we continue at 300,000 square feet, a quarter of new that's going to replace more than replace. Um, what the likely kind of move outs, would be, um, to the positive by probably 2 to 300,000 square feet. And then, what I think is likely is you're going to see that least occupied, spread narrow, and that's going to add more in terms of occupancy. So,

That creates the environment to drive occupancy higher. So, I think that sets us up well. But again, we’ve got to continue to lease space. Um, you know, we feel confident about that given the pipeline that’s out there. But certainly, you know, there’s a long way between now and the next six quarters.

Brian Leary: Gotcha. Thank you.

Gotcha, thank you.

Operator: Thank you for your question. Next question is from the line of Young Coo with Wells Fargo. Your line's now open.

Thank you for your question. Next question is from the line of young coup with Wells Fargo. You want to open

Brian Leary: Yes. Great. Thank you. Brendan, just wanted some, clarification on the other income. Thank you for that detail on the $3 million payment from Florida. How should we think about that other income line item for the rest of the year? And then are there similar types of opportunities in '26?

Uh, yes, uh, great, thank you. Uh, Brendan just wanted some uh, clarification on the other income. Thank you for that detail. On the $3 million payment from Florida, how should we think about that other income line item for the rest of the year? And then, are there similar type of opportunities in ’26?

Brendan Maiorana: Yeah, Young, that's a good question. yeah, we've kind of been running at that, call it, you know, on a normalized basis, a million five a quarter. and then obviously this quarter, I think you saw that number spike up to, you know, four and a half or a little more than that, in the quarter, which was which was driven, as you point out, by the by the, FDOT payment. I would expect that that other income line would be more consistent with that million five or so a quarter kind of going forward. we tend to get some unusual items that happen, you know, once a year, kind of give or take, right? So last year we had, a large repayment on tax from Nashville. That's why if you look at the year-over-year comparison to Q2 '24, it's actually down in that line item.

Yeah young, it's a good question. Um, yeah, we've kind of been running at that, call it, you know, on a normalized basis, a 10005, a quarter. Um, and then obviously this quarter, I think you saw that number Spike up to, you know, 4 and a half or a little more than that. Um, in the quarter which was, which was driven as you point out by the, by the um, fdot payment. Um, I would expect that, that other income line would be more consistent with that million 5 or so a quarter kind of going forward. Um,

There we tend to get some unusual items that happen, you know?

Brendan Maiorana: so I would say that in all likelihood, there's probably something that happens sometime between now and, and you know, over the next few quarters or it happens next year, but it's always a little bit difficult to forecast, and we don't have visibility into that level yet. so we'll kind of see where where that stuff shakes out, but, wouldn't be surprising to me if if there's some, you know, one-timers or whatever like that for 2026.But

Operator: I think your question is good that that could be a, there could be a little bit less of that next year than what we have this year.

But um, wouldn't be surprising to me if if there's some, you know, 1- timers or whatever like that for 2026 but I think your question is good, that that could be a. There could be a little bit less of that next year than what we have this year.

Brendan Maiorana: Got it. Thank you, Brendan. And then just one last from me. So it looks like the year-end occupancy target might be a little bit lower than previously expected. Does that impact your same-store NOI outlook by any chance?

Got it. Thank you Brandon, and then just 1 last from me. So, it looks like the year, end occupancy. Target might be a little bit lower than previously expected. Does that impact your uh same store? Noi Outlook by any chance.

Operator: Yeah, good question. Not really. So I think the average occupancy we didn't change. We are probably a little bit higher in terms of average occupancy in the first half of the year than what we thought kind of coming into the year. But we're, because of a few of those leases that I mentioned that we took back some of the space early, or we've got one customer that we moved from late in '25 occupancy to early in '26 occupancy, that year-end number is coming in a little bit lower than where we thought. But those are generally all for pretty good reasons. So it didn't have a huge impact in terms of the same-store NOI outlook, even though it does have less occupancy on one day of the year at the end of the year. But that's a timing issue more than anything else.

Um,

Yeah, good question, not really. So, I think the average occupancy, we didn't change. Um, we we are probably a little bit higher in terms of average occupancy, in the first half of the year, than what we thought kind of coming into the year. Um, but we're we're because of a few of those leases that I mentioned that we um, took back some of the space earlier. We've got 1 customer that we moved from late in 25 occupants to early in 26 occupancy that year in numbers, coming in a little bit lower than where we thought. Um, but those are generally all for pretty good reasons, so it didn't have a huge impact in terms of the same store and Ally Outlook, even though it does have less occupancy on 1 day of the year at the end of the year. But that's that's a timing issue more than more than anything else.

Brendan Maiorana: Gotcha. Perfect. Thank you.

Gotcha, perfect. Thank you.

Operator: Thank you.

Ted Klinck: Thank you for your question. There are no additional questions waiting at this time. So I'll pass the call back to the management team for any closing remarks.

Thank you. Thank you for your question.

There are no additional questions waiting at this time, so I'll pass the call back to the management team for any closing remarks.

Brendan Maiorana: I just want to thank everybody for joining the call today. And thank you for your interest in HIGHWOODS. We look forward to seeing everybody soon. Take care.

I just want to thank everybody for joining the call today, and thank you for your interest in Highwoods. We look forward to seeing everybody soon.

Take care.

Ted Klinck: That concludes the conference call. Thank you for your participation. You may now disconnect your life.

That includes the conference call. Thank you for your participation. You may now disconnect your lines.