Q1 2026 Highwoods Properties Inc Earnings Call

April 29, 2026

Operator: Good morning, and welcome to the Highwoods Properties Q1 2026 earnings call. I would now like to turn the call over to Brendan Maiorana, Executive Vice President and Chief Financial Officer.

Speaker #3: To ask a question at this time, you'll need to press star, followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded.

Speaker #3: I would now like to turn the call over to Brendan Maiorana, Executive Vice President and Chief Financial Officer. Thank you. Please go ahead.

Speaker #2: 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.

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 EBITDAre. 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.

Speaker #2: 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.

Speaker #2: At HIGHWOODS dot 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.

Speaker #2: 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.

Speaker #2: As you know, actual events and results can differ materially from these forward-looking statements and the company does not undertake a duty to update any forward-looking statements.

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 turn the call over to Ted.

Speaker #2: With that, I'll turn the call over to Ted.

Speaker #3: Thanks, Brendan. Good morning, everyone. We had an excellent quarter, executing on our key initiatives. Leasing volume was strong across our in-service and development properties.

Ted Klinck: Thanks, Brendan, and good morning, everyone. We had an excellent quarter executing on our key initiatives. Leasing volume was strong across our in-service and development properties. This is clear from the 50 basis point increase in our lease rate on our in-service portfolio, an 800 basis point increase in our lease rate on our developments. Both of these will deliver meaningful upside in NOI, cash flow, and FFO over the next few years as occupancy ramps. During the quarter, we invested $108 million in best-in-class commute-worthy properties in BBD locations in Dallas and Raleigh through joint ventures and sold $42 million of non-core properties in Richmond. All of this activity improves our portfolio and further cements the foundation for pushing our growth rate and cash flows meaningfully higher and will result in long-term value creation for our shareholders.

Speaker #3: This is clear from the 50-basis-point increase in our lease rate on our in-service portfolio, and an 800-basis-point increase in our lease rate on our developments.

Speaker #3: Both of these will deliver meaningful upside in NOI, cash flow, and FFO over the next few years, as occupancy ramps. During the quarter, we invested $108 million in best-in-class commute-worthy properties in BBD locations in Dallas and Raleigh through joint ventures.

Speaker #3: And sold 42 million of non-core properties in Richmond. All of this activity improves our portfolio, and further cements the foundation for pushing our growth rate and cash flows meaningfully higher and will result in long-term value creation for our shareholders.

Speaker #3: Even with our strong performance in the quarter, we recognize the broader narrative that advances in AI could reshape the workforce and therefore affect long-term office demand.

Ted Klinck: Even with our strong performance in the quarter, we recognize the broader narrative that advances in AI could reshape the workforce and therefore affect long-term office demand. The range of potential outcomes is wide and varied. At this point, there are many unknowns. What we do know, however, is that customers and prospects haven't diminished their appetite for space and are making long-term commitments to their in-office strategies and activity across our portfolio, our markets, and our BBDs is strong. Leasing was solid in the quarter. Our leasing pipeline remains robust. High-quality space across our BBDs is dwindling. There's little to no new supply expected during the foreseeable future. This flight to quality dynamic creates a strong backdrop for occupancy gains and rent growth, both of which we experienced in Q1.

Speaker #3: The range of potential outcomes is wide and varied. And at this point, there are many unknowns. What we do know, however, is that customers and prospects haven't diminished their appetite for space and are making long-term commitments to their in-office strategies.

Speaker #3: And activity across our portfolio, our markets, and our BBDs is strong. Leasing was solid in the quarter. Our leasing pipeline remains robust. High-quality space across our BBDs is dwindling, and there's little to no new supply expected during the foreseeable future.

Speaker #3: This flight-to-quality dynamic creates a strong backdrop for occupancy gains and rent growth, both of which we experienced in the first quarter. Additionally, credit-worthy customers are willing to make long-term commitments, as evidenced by our weighted average lease term on second-gen lease volume of seven and a half years.

Ted Klinck: Additionally, creditworthy customers are willing to make long-term commitments, as evidenced by our weighted average lease term on second gen lease volume of 7.5 years, more than 1 year longer than our recent average lease term. Demographic trends across our footprint are favorable, with business relocations and expansions re-accelerating, driving healthy population and job growth. We firmly believe high quality, commute-worthy properties and BBD locations owned by well-capitalized landlords are best positioned to capture increasing demand and improving economics. Turning to the quarter, we delivered solid financial performance with FFO of $0.84 per share, and we maintained our outlook for the year. Our leasing performance was excellent. We signed 958,000 square feet of second gen leases, including over 300,000 square feet of new leases.

Ted Klinck: Additionally, creditworthy customers are willing to make long-term commitments, as evidenced by our weighted average lease term on second gen lease volume of 7.5 years, more than one year longer than our recent average lease term. Demographic trends across our footprint are favorable, with business relocations and expansions re-accelerating, driving healthy population and job growth. We firmly believe high quality, commute-worthy properties and BBD locations owned by well-capitalized landlords are best positioned to capture increasing demand and improving economics. Turning to the quarter, we delivered solid financial performance with FFO of $0.84 per share, and we maintained our outlook for the year. Our leasing performance was excellent. We signed 958,000 square feet of second gen leases, including over 300,000 square feet of new leases.

Speaker #3: More than one year longer than our recent average lease term. Further, demographic trends across our footprint are favorable, with business relocations and expansions re-accelerating.

Speaker #3: Driving healthy population and job growth, we firmly believe high-quality, commute-worthy properties and BBD locations owned by well-capitalized landlords are best positioned to capture increasing demand and improving economics.

Speaker #3: Turning to the quarter, we delivered solid financial performance with FFO of 84 cents per share, and we maintained our outlook for the year. Our leasing performance was excellent.

Speaker #3: We signed 958,000 square feet of second-gen leases including over 300,000 square feet of new leases. We delivered GAAP rent growth of 19.4% and cash rent growth of 4.8%.

Ted Klinck: We delivered GAAP rent growth of 19.4% and cash rent growth of 4.8%. Net effective rents were the second highest in company history and 9% higher than the prior 5-quarter average. Expansions, which we include as renewals, outpaced contractions at a ratio of nearly 2 to 1. In addition, we signed 107,000 sq ft in the first gen leases across our development properties. Customers and prospects recognize the blocks of high-quality BBD-located office space with well-capitalized owners are diminishing across our footprint, which gives us strong pricing power in the best submarkets. We placed in service more than $200 million of 87% leased development properties during the quarter. GlenLake Three, which comprises 203,000 sq ft of office and 15,000 sq ft of retail, is now 94% leased.

Ted Klinck: We delivered GAAP rent growth of 19.4% and cash rent growth of 4.8%. Net effective rents were the second highest in company history and 9% higher than the prior 5-quarter average. Expansions, which we include as renewals, outpaced contractions at a ratio of nearly two to one. In addition, we signed 107,000 sq ft in the first gen leases across our development properties. Customers and prospects recognize the blocks of high-quality BBD-located office space with well-capitalized owners are diminishing across our footprint, which gives us strong pricing power in the best submarkets. We placed in service more than $200 million of 87% leased development properties during the quarter. GlenLake Three, which comprises 203,000 sq ft of office and 15,000 sq ft of retail, is now 94% leased.

Speaker #3: Net effective rents were the second highest in company history, a 9% higher than the prior five-quarter average. Expansions which we include as renewals outpaced contractions at a ratio of nearly 2 to 1.

Speaker #3: In addition, we signed 107,000 square feet in the first-gen leases across our development properties. Customers and prospects recognize the blocks of high-quality BBD located office space with well-capitalized owners are diminishing across our footprint.

Speaker #3: Which gives a strong pricing power in the best submarkets. We placed in service more than 200 million of 87% leased development properties during the quarter.

Speaker #3: Glenlake 3, which comprises 203,000 square feet of office, and 15,000 square feet of retail, is now 94% leased. Across the street, we delivered Glenlake 2 retail which is 100% leased to Crooked Hammock Brewery.

Ted Klinck: Across the street, we delivered GlenLake Two retail, which is 100% leased to Crooked Hammock Brewery. The addition of 24,000 square feet of food and beverage options elevates GlenLake's offerings and complements the nearly 1 million square feet of office we have here. This has supported our ability to push rents across this park in West Raleigh. We also placed in service Granite Park Six in Dallas' Legacy BBD. This 422,000 square foot best-in-class office property is 80% leased. We also made strong progress leasing up our two remaining development properties. 23Springs, our 642,000 square foot development project in Uptown Dallas, continues to garner strong activity with the lease rate now 83%, up from 75% last quarter and 62% 12 months ago.

Speaker #3: The addition of 24,000 square feet of food and beverage options elevates Glenlake's offerings and complements the nearly 1 million square feet of office we have here.

Speaker #3: This is supported our ability to push rents across this park in West Raleigh. We also placed in service Granite Park 6 in Dallas's legacy BBD.

Speaker #3: This 422,000 square foot best-in-class office property is 80% leased. We also made strong progress leasing up our two remaining development properties. 23 Springs, our 642,000 square foot development project in Uptown Dallas, continues to garner strong activity with the lease rate now 83%.

Speaker #3: Up from 75% last quarter, and 62% 12 months ago. We have strong prospects to bring our lease rate at 23 Springs into the 90s.

Ted Klinck: We have strong prospects to bring our lease rate of 23Springs into the 90s. In Tampa's Westshore BBD, our 143,000 square foot Midtown East development is now 95% leased, up from 76% last quarter and 39% 12 months ago. The office component at Midtown East is 100% leased. On a combined basis, the properties placed in service during Q1 and in our remaining development pipeline are 86% leased, but only 48% occupied. As the leases commence, we will capture significant growth in NOI, cash flow, and FFO. We are starting to receive interest from build to suit and sizable anchor prospects for potential new development.

Speaker #3: And Tampa's West Shore BBD, our 143,000-square-foot Midtown East development, is now 95% leased—up from 76% last quarter and 39% 12 months ago.

Speaker #3: The office component in midtown east is 100% leased. On a combined basis, the properties placed in service during the first quarter and in our remaining development pipeline are 86% leased.

Speaker #3: But only 48% occupied. As the leases commence, we will capture significant growth in NOI, cash flow, and FFO. We are starting to receive interest from build-to-suit and sizable anchor prospects for potential new development.

Speaker #3: It's still early, and it's hard to say whether any of these discussions will result in new projects but the increased interest is encouraging and signifies the limited inventory companies face when searching for large blocks of high-quality space.

Ted Klinck: It's still early, and it's hard to say whether any of these discussions will result in new projects, but the increased interest is encouraging and signifies the limited inventory companies face when searching for large blocks of high-quality space. On the disposition front, we sold a non-core portfolio in Richmond for $42 million. As reflected in our outlook, we expect to sell roughly $200 million of additional non-core assets by the middle of this year and are marketing other assets for sale. We believe we will be able to redeploy capital from non-core asset and land sales on a leverage-neutral basis that will further strengthen our cash flows and result in higher growth. As we announced last week, we may also use non-core disposition proceeds to repurchase up to $250 million of outstanding shares of our common stock on a leverage-neutral basis.

Speaker #3: On the disposition front, we sold a non-core portfolio in Richmond for $42 million. As reflected in our outlook, we expect to sell roughly 200 million of additional non-core assets by the middle of this year and are marketing other assets for sale.

Speaker #3: We believe we will be able to redeploy capital from non-core asset and land sales on a leverage-neutral basis that will further strengthen our cash flows and result in higher growth.

Speaker #3: As we announced last week, we may also use non-core disposition proceeds to repurchase up to 250 million of outstanding shares of our common stock on a leveraged neutral basis.

Speaker #3: We continue to evaluate acquisition opportunities and highly pre-leased developments but repurchasing our shares is another capital deployment option we now have in our arsenal.

Ted Klinck: We continue to evaluate acquisition opportunities and highly pre-leased developments, but repurchasing our shares is another capital deployment option we now have in our arsenal. Before turning the call over to Brian, I want to reiterate the priorities we have highlighted over the past few years that will drive long-term value creation for our shareholders. First, we will continue to drive occupancy towards stabilized levels in our operating portfolio. Second, we will deliver and stabilize our development pipeline. Third, we will improve our portfolio quality and long-term growth rate by recycling out of non-core CapEx intensive assets in non-BBD locations and invest in properties with better cash flows and higher long-term growth rates. Fourth, we will do all this while maintaining a strong and flexible balance sheet. We made meaningful progress on each of these priorities during Q1.

Speaker #3: Before turning the call over to Brian, I want to reiterate the priorities we have highlighted over the past few years that will drive long-term value creation for our shareholders.

Speaker #3: First, we will continue to drive occupancy towards stabilized levels in our operating portfolio. Second, we will deliver and stabilize our development pipeline. Third, we will improve our portfolio quality and long-term growth rate by recycling out of non-core CAPEX-intensive assets in non-BBD locations and invest in properties with better cash flows and higher long-term growth rates.

Speaker #3: And fourth, we will do all this while maintaining a strong and flexible balance sheet. We made meaningful progress on each of these priorities during the first quarter.

Speaker #3: We believe the focus on these four areas combined with a strong fundamental backdrop in our core BBDs due to the healthy demand and limited new supply will drive significant growth in cash flow and long-term value over the next several years.

Ted Klinck: We believe the focus on these four areas, combined with a strong fundamental backdrop in our core BBDs due to the healthy demand and limited new supply, will drive significant growth in cash flow and long-term value over the next several years. Brian.

Speaker #3: Brian?

Speaker #4: Thanks, Ted, and good morning, everyone. Our operating results continue to reflect the advantage of owning commute-worthy, amenitized assets, and the best business districts of high-growth Sun Belt metros.

Brian Leary: Thanks, Ted, and good morning, everyone. Our operating results continue to reflect the advantage of owning commute-worthy, amenitized assets in the best business districts of high-growth Sunbelt metros. Fundamentals across our markets continue to improve as evidenced by vacancy rates and sublease space declining. Rents are up, which combined with steady concession packages, has resulted in higher net effective rents. As far as supply goes, the best of the best and the best of the rest are in high demand. With office construction at historic lows or nonexistent in many markets, new office inventory is in scarce supply. With demolitions outpacing deliveries nationwide, the flight to quality has become, in many cases, an all-out sprint to quality, with users proactively inquiring for early extensions to lock in location and terms.

Speaker #4: Fundamentals across our markets continue to improve as evidenced by vacancy rates and subtly space declining. Rents are up, which combined with steady concession packages has resulted in higher net effective rents.

Speaker #4: As far as supply goes, the best of the best and the best of the rest are in high demand. With office construction and historic lows, or nonexistent in many markets, new office inventory is in scarce supply.

Speaker #4: With demolitions outpacing deliveries nationwide, the flight to quality has become, in many cases, an all-out sprint to quality, with users proactively inquiring for early extensions to lock in location and terms.

Speaker #4: A common theme across our markets is that office rents pale in comparison to the investment customers have in their people. And that exceptional environments and experiences yield superior results when their people are in the office, and being better together.

Brian Leary: A common theme across our markets is that office rents pale in comparison to the investment customers have in their people, and that exceptional environments and experiences yield superior results when their people are in the office and being better together. Customers are choosing well-located, highly amenitized Class A buildings with well-capitalized owners and customer-centric operations. They are willing to pay for it. They are moving to metros that continue to win people and companies with the highest quality of life and most business-friendly outlooks. This is the Highwoods portfolio. This is the Highwoods team. These are our Sunbelt markets and BBDs.

Speaker #4: Customers are choosing well-located, highly amenitized, class A buildings with well-capitalized owners and customer-centric operations and they are willing to pay for it. They are moving to metros that continue to win people and companies with the highest quality of life and most business-friendly outlooks.

Speaker #4: This is the Highwoods portfolio, this is the Highwoods team, and these are our Sun Belt markets and BBDs. Starting with Dallas, the metroplex remains one of the country's premier destinations for corporate headquarters and expansions.

Brian Leary: Starting with Dallas, the metroplex remains one of the country's premier destinations for corporate headquarters and expansions, which shouldn't be a surprise at this point, considering it is Site Selection Magazine's number 1 city for headquarter relocations and is in the state Chief Executive Magazine has deemed as the best for business 21 consecutive years. From 2018 through 2024, Dallas landed roughly 100 headquarter relocations, with 11 more in 2025. The region continues to attract diverse firms across financial and professional services, advanced manufacturing, logistics, and life sciences, seeking a central location, business-friendly environment, and a deep labor pool. That macro story is consistent with the office fundamentals you see in the Q1 broker data. According to Cushman & Wakefield, DFW recorded 117,000 square feet of positive net absorption in the Q1 of 2026.

Speaker #4: Which shouldn't be a surprise at this point considering it is site selection magazine's number one city for headquarter relocations, and is in the state chief executive magazine has deemed as the best for business 21 consecutive years.

Speaker #4: From 2018 through 2024, Dallas landed roughly 100 headquarter relocations, with 11 more in 2025. The region continues to attract diverse firms across financial and professional services, advanced manufacturing, logistics, and life sciences, seeking a central location, business-friendly environment, and a deep labor pool.

Speaker #4: That macro story is consistent with the office fundamentals you see in the Q1 broker data. According to Cushman and Wakefield, BFW recorded 117,000 square feet of positive net absorption in the first quarter of 2026.

Speaker #4: It's the fifth consecutive positive quarter, with nearly 340,000 square feet of positive absorption in Class A, as Class B continues to shed space. Our Dallas portfolio is in Uptown, Legacy, and Preston Center, which is the tightest submarket in the region with less than 6% vacancy and is home to one of our latest acquisitions, The Terraces.

Brian Leary: Its fifth consecutive positive quarter, with nearly 340,000 sq ft of positive absorption in Class A as Class B continues to shed space. Our Dallas portfolio is in Uptown, Legacy, and Preston Center, which is the tightest submarket in the region with less than 6% vacancy and is home to one of our latest acquisitions, The Terraces. These BBDs are squarely in the path of demand. The mark to market we're realizing via second generation leasing, both at McKinney & Olive and The Terraces, is significant, generating GAAP rent spreads of 27%. Turning to Charlotte. The city is increasingly recognized as a strategic hub that's being validated by headline corporate decisions. Among the 104 metros that Cushman & Wakefield tracks, Charlotte was number one for job growth.

Speaker #4: These BBDs are squarely in the path of demand. The mark-to-market we're realizing, via second-generation leasing, both at McKinney and Olive, and The Terraces, is significant, generating gap rent spreads of 27%.

Speaker #4: Turning to Charlotte, the city is increasingly recognized as a strategic hub that's being validated by headline corporate decisions, among the 104 metros that Cushman and Wakefield tracks, Charlotte was number one for job growth.

Speaker #4: To that end, in subsequent to our most recent earnings call in February, three global financial institutions have made major new job announcements. Already with an established home in Charlotte's South Park BBD, where we have almost 800,000 square feet, JPMorgan recently announced plans for an eventual 1,000-job regional hub.

Brian Leary: To that end, and subsequent to our most recent earnings call in February, three global financial institutions have made major new job announcements. Already with an established home in Charlotte South Park BBD, where we have almost 800,000 square feet, JP Morgan recently announced plans for an eventual 1,000 job regional hub, with 400 of those to be hired by 2028. Two new entries to the market include Capital Group's planned new home in Uptown with 600 new employees. After a nationwide search, Sumitomo Mitsui Banking Group, one of Japan's largest banks, selected Uptown as well for a second US headquarters, creating 2,000 jobs by the end of 2032, with an average salary for these 2,000 jobs projected to be over $165,000 a year. This macro backdrop aligns perfectly with Q1 office fundamentals.

Speaker #4: With 400 of those to be hired by 2028. Two new entries to the market include Capital Group's Plan New Home in Uptown, with 600 new employees, and after a nationwide search, Sumitomo Mitsui Banking Group, one of Japan's largest banks, selected Uptown as well for a second US headquarters.

Speaker #4: Creating 2,000 jobs by the end of 2032, with an average salary for these 2,000 jobs projected to be over $165,000 a year. This macro backdrop aligns perfectly with Q1 office fundamentals.

Speaker #4: CBRE noted approximately 410,000 square feet of positive net absorption in the first quarter, and total leasing volume of roughly 1.4 million square feet, up nearly 74% year over year.

Brian Leary: CBRE noted approximately 410,000 square feet of positive net absorption in Q1 and total leasing volume of roughly 1.4 million square feet, up nearly 74% year-over-year, with about 70% of that volume in Class A buildings. In Uptown, the denominator is shrinking as millions of square feet of office space are being taken out of inventory for conversions to residential, hotel, and retail uses. Strong demand for high-quality space and limited new supply are yielding a landlord favorable environment for driving leasing fundamentals. Our Charlotte assets are directly benefiting from this demand, which is why we're seeing strong rent roll-ups and net effective rent growth in Charlotte. In Raleigh, the long-term story of in-migration and organic growth remains intact.

Speaker #4: With about 70% of that volume in class A buildings. In Uptown, the denominator is shrinking as millions of square feet of office space are being taken out of inventory for conversions to residential, hotel, and retail uses.

Speaker #4: Strong demand for high-quality space and limited new supply are yielding a landlord-favorable environment for driving leasing fundamentals. Our Charlotte assets are directly benefiting from this demand, which is why we're seeing strong rent roll-ups and net effective rent growth in Charlotte.

Speaker #4: In Raleigh, the long-term story of in-migration and organic growth remains intact. Recent census estimates show the Raleigh metro is one of the 10 fastest growing in the country between 2024 and 2025.

Brian Leary: Recent census estimates show the Raleigh metro is one of the 10 fastest growing in the country between 2024 and 2025. Statewide, North Carolina ranked 1st in domestic net migration and 3rd in overall population gain for the same period, adding an estimated 146,000 residents. CBRE's tech report noted that the Raleigh area also produces nearly 5,000 tech graduates annually, reinforcing a sustainable pipeline of skilled workers. Office fundamentals reflect that strength in the best business districts, our team was busy for the quarter, signing over 200,000 square feet of second generation space. Our two new developments at GlenLake, which offer a mix of uses and are 95% leased, and Bloc83, our recent mixed-use JV acquisition, which is 97% leased in Raleigh CBD, are directly aligned with where both immigration and corporate demand is strongest.

Speaker #4: And statewide, North Carolina ranked first in domestic net migration and third in overall population gain for the same period, adding an estimated 146,000 residents.

Speaker #4: CBRE's tech report noted that the Raleigh area also produces nearly 5,000 tech graduates annually, reinforcing a sustainable pipeline of skilled workers. Office fundamentals reflect that strength in the best business districts and our team was busy for the quarter, signing over 200,000 square feet of second-generation space.

Speaker #4: Our two new developments at Glenlake, which offer a mix of uses in our 95% leased, and Block 83, our recent mixed-use JV acquisition, which is 97% leased in Raleigh's CBD, are directly aligned with where both immigration and corporate demand is strongest.

Speaker #4: Finishing in Nashville, where strong population growth and a diversified economy continue to attract brand name employers, just last month Starbucks announced a $100 million plan to open a Southeast corporate office in downtown Nashville for 2,000 employees.

Brian Leary: Finishing in Nashville, where strong population growth and a diversified economy continue to attract brand name employers. Just last month, Starbucks announced a $100 million plan to open a Southeast corporate office in downtown Nashville for 2,000 employees, with some relocating from Seattle and to balance new hires in Nashville. Office data for Q1 shows that demand is focused on newer or newly amenitized Class A nodes and our 287,000 sq ft of quarterly leasing with a weighted average lease term of 9.8 years and cash and GAAP rent spreads of 9.4% and 26.5% respectively, bears witness to this data. Across our footprint, we're aligning capital with the metros and submarkets that continue to win people, jobs, and corporate investment.

Speaker #4: With some relocating from Seattle and the balanced new hires in Nashville, office data for the first quarter shows that demand is focused on newer or newly amenitized Class A nodes. Our 287,000 square feet of quarterly leasing, with a weighted average lease term of 9.8 years and cash and GAAP rent spreads of 9.4% and 26.5%, respectively, bears witness to this data.

Speaker #4: Across our footprint, we're aligning capital with the metros and submarkets that continue to win people, jobs, and corporate investment. We're making sure our portfolio and people are prepared to deliver commute-worthy experiences to our customers and their teams.

Brian Leary: We're making sure our portfolio and people are prepared to deliver commute-worthy experiences to our customers and their teams. Our success this quarter supports this strategy, and we're confident will continue to serve us well. Brendan?

Speaker #4: Our success this quarter supports this strategy, and we're confident it will continue to serve us well. Brendan, thanks. Brian, in the first quarter, we delivered net income of $31.3 million, or $0.29 per share, and FFO of $94 million, or $0.84 per share.

Brendan Maiorana: Thanks, Brian. In Q1, we delivered net income of $31.3 million or $0.29 per share and FFO of $94 million or $0.84 per share. The quarter included a $17 million property sale gain from our disposition in Richmond that was included in net income but not included in FFO. During the quarter, we received a term fee at an unconsolidated JV for a net $2.2 million or $0.02 per share from a customer moving from McKinney & Olive to 23Springs, and we sold our interest in a third-party brokerage services firm, resulting in a $1.4 million gain. These two items were included in FFO and were factored into our original FFO outlook. Otherwise, there were no unusual items in the quarter.

Speaker #4: The quarter included a 17 million dollar property sale gain from our disposition in Richmond that was included in net income, but not included in FFO.

Speaker #4: During the quarter, we received a term fee at an unconsolidated JV for a net 2.2 million dollars, or 2 cents per share, from a customer moving from McKinney and Olive to 23 Springs.

Speaker #4: And we sold our interest in a third-party brokerage services firm resulting in a 1.4 million dollar gain. These two items were included in FFO and were factored into our original FFO outlook.

Speaker #4: Otherwise, there were no unusual items in the quarter. You may have noticed some minor changes to our supplemental package we released yesterday, that we believe will make it easier to derive our share of joint venture NOI.

Brendan Maiorana: You may have noticed some minor changes to our supplemental package we released yesterday that we believe will make it easier to derive our share of joint venture NOI. We also broke out Dallas as its own market now that we have 3 in-service properties in Dallas, which will increase to 4 upon stabilization of 23Springs. Our other markets now primarily consist of our non-core Pittsburgh and Richmond portfolios. We are pleased with our Q1 financial results, which demonstrate the resiliency of our operations and cash flows. Even more consequential was this quarter's leasing activity on both the in-service portfolio and development pipeline, which positions us to increase occupancy and deliver NOI growth during the remainder of 2026 and beyond. Our lease rate is 89.7%, up from 89.2% 1 quarter ago.

Speaker #4: We also broke out Dallas as its own market now that we have three in-service properties in Dallas, which will increase to four upon stabilization of 23 Springs.

Speaker #4: Our other markets now primarily consist of our non-core Pittsburgh and Richmond portfolios. We are pleased with our first quarter financial results, which demonstrate the resiliency of our operations and cash flows.

Speaker #4: Even more consequential was this quarter's leasing activity, on both the in-service portfolio and development pipeline, which positions us to increase occupancy and deliver NOI growth during the remainder of 2026 and beyond.

Speaker #4: Our lease rate is 89.7%, up from 89.2% one quarter ago. The spread between our leased and occupied rates of 470 basis points is three times our normal historical spread, a strong indicator for future occupancy gains.

Brendan Maiorana: The spread between our leased and occupied rates of 470 basis points is three times our normal historical spread, a strong indicator for future occupancy gains. We reiterated our year-end occupancy outlook of 86.5% to 88.5%, which implies a 250 basis point increase at the midpoint over the remaining three quarters of the year. Our balance sheet remains in good shape. We had over $650 million of available liquidity at the end of the quarter. Subsequent to quarter end, we closed a $100 million secured mortgage at Granite Park Six, resulting in over $50 million of capital to Highwoods.

Speaker #4: We reiterated our year-end occupancy outlook of 86.5% to 88.5%, which implies a 250-basis-point increase at the midpoint over the remaining three quarters of the year.

Speaker #4: Our balance sheet remains in good shape. We had over 650 million of available liquidity at the end of the quarter, and subsequent to quarter end, we closed a 100 million dollar secured mortgage at Granite Park 6, resulting in over 50 million dollars of capital to Highwoods.

Speaker #4: We expect to close one or more additional financings at JVs during the remainder of the year, which will repatriate capital back to Highwoods, and improve our liquidity in unencumbered debt-to-EBITDA ratio.

Brendan Maiorana: We expect to close one or more additional financings at JVs during the remainder of the year, which will repatriate capital back to Highwoods and improve our liquidity and unencumbered debt to EBITDA ratio. Based on our current expectations of NOI growth and assuming $200 million of non-core asset sales, we expect to end the year with debt to EBITDA in the low to mid-sixes, with additional reductions likely in future periods as NOI grows. We have only $40 million of remaining capital needed to complete our share of the development properties. These properties, combined with the developments placed in service this quarter, will deliver over $20 million of annual NOI growth compared to the Q1 2026 run rate. As Ted mentioned, we have maintained our FFO outlook of $3.40 to $3.68 per share.

Speaker #4: Based on our current expectations of NOI growth, and assuming 200 million of non-core asset sales, we expect to end the year with debt-to-EBITDA in the low to mid-sixes with additional reductions likely in future periods as NOI grows.

Speaker #4: We have only 40 million of remaining capital needed to complete our share of the development properties. These properties combined with the developments placed in service this quarter will deliver over 20 million of annual NOI growth compared to the Q1 26 run rate.

Speaker #4: As Ted mentioned, we have maintained our FFO outlook of $3.40 to $3.68 per share. It's still early in the year, and while we're off to a strong start with our leasing activity, most of these leases will have a financial benefit to 2027 and thereafter.

Brendan Maiorana: It's still early in the year, and while we're off to a strong start with our leasing activity, most of these leases will have a financial benefit to 2027 and thereafter. Before we turn the call over for questions, there are a couple of items to note. First, I mentioned the term fee and gain on sale we recorded in Q1. We do expect some additional term fees in the remainder of the year, as is typical, but these are expected to be lower in subsequent quarters. We also expect some additional other income items in H2 of the year. In total, these items are expected to be around $0.06 to $0.07 for full year 2026, which is approximately $0.05 lower than 2025.

Speaker #4: Before we turn the call over for questions, there are a couple of items to note. First, I mentioned the term fee and gain on sale we recorded in the first quarter, we do expect some additional term fees in the remainder of the year, as is typical, but these are expected to be lower in subsequent quarters.

Speaker #4: We also expect some additional other income items in the second half of the year. In total, these items are expected to be around 6 to 7 cents for full year 2026, which is approximately 5 cents lower than 2025.

Speaker #4: Second, capitalized interest is expected to be lower for the foreseeable future, as we will no longer capitalize interest expense at 23 Springs or Midtown East.

Brendan Maiorana: Second, capitalized interest is expected to be lower for the foreseeable future as we will no longer capitalize interest expense at 23Springs or Midtown East. There is significant embedded NOI growth at these properties due to leases that are signed but won't be fully online before the middle of 2027. Third, as is typical, G&A was higher in Q1 due to the expensing of annual equity grants. G&A is expected to be lower for the remaining quarters of the year. Given these factors and our expectation of steadily increasing occupancy during the final 3 quarters of 2026, we expect FFO to increase in the H2 of the year. Operator, we are now ready for questions.

Speaker #4: There is significant embedded NOI growth at these properties due to leases that are signed, but won't be fully online before the middle of 2027.

Speaker #4: Third, as is typical, G&A was higher in Q1 due to the expensing of annual equity grants. G&A is expected to be lower for the remaining quarters of the year.

Speaker #4: Given these factors and our expectation of steadily increasing occupancy during the final three quarters of 2026, we expect FFO to increase in the second half of the year.

Speaker #4: Operator, we are now ready for questions.

Speaker #2: Thank you. As a reminder to ask a question, please press star, followed by the number one on your telephone keypad. Our first question comes from Seth Bergy from City.

Operator: Thank you. Our first question comes from Seth Bergey from Citigroup. Please go ahead. Your line is open.

Speaker #2: Please go ahead, your line is open.

Speaker #3: Hi, good morning. Thanks for taking my question. I guess I just wanted to go back to some of your comments and prepared remarks about discussions around potential new developments and then you obviously announced kind of this share reauthorization.

Seth Bergey: Hi, good morning. Thanks for taking my question. I guess I just wanted to go back to some of your comments and prepared remarks about, you know, discussions around potential new developments, and then you obviously announced kind of the share reauthorization. I'm just curious, kind of, you know, how do you think about capital allocation priorities and, you know, how do those two opportunities kind of compare to each other today?

Speaker #3: I'm just curious kind of how do you think about capital allocation priorities and how do those two opportunities kind of compare to each other today?

Speaker #4: Hey, Seth, it's Ted. Look, I think we're always looking at the best ways to improve our long-term growth rate, strengthen our cash flows, make them more resilient, and improve the quality of the portfolio.

Ted Klinck: Hey, Seth, it's Ted. Look, I think we're always looking at the best ways to improve, you know, our long-term growth rate, strengthen our cash flows, make us more resilient cash flows, improve the quality of the portfolio. I just think our stock buyback gives us another option to think about and gives us optionality. I think, you know, over the years, we've proven to be pretty disciplined allocators of capital. We've rotated between acquisitions and development throughout, you know, various cycles, always looking at what's the best risk-adjusted return. The stock buyback just gives us one more option to consider. You know, last year, we were very active on the acquisition side. We, you know, acquired on our shared interest about $580 million worth of assets at what we consider very attractive pricing.

Speaker #4: So I just think our stock buyback gives us another option to think about, gives us optionality. I think over the years we've proven to be pretty disciplined allocators of capital.

Speaker #4: We've rotated between acquisitions and development throughout various cycles, always looking at what's the best risk-adjusted return. And again, the stock buyback just gives us one more option to consider.

Speaker #4: Last year we were very active on the acquisition side. We acquired on our shared interest about 580 million dollars worth of assets. What we consider very attractive pricing.

Speaker #4: Now, as you alluded to, we're becoming more constructive on development. There's a shortage of high-quality space, so we're fielding calls, whether it be build-to-suits or pre-leased office development.

Ted Klinck: Now, as you alluded to, we're becoming more constructive on development. You know, there's a shortage of high-quality space, so we're fielding calls, whether it be build to suits or pre-leased office development. And development's hard these days, right? It's expensive, it's hard to finance, interest costs are higher. Everything about development's really hard right now. We think there's opportunities for well-capitalized developers to earn, you know, pretty attractive risk-adjusted returns. Again, we look at everything, but development is certainly becoming more constructive.

Speaker #4: And development's hard these days, right? It's expensive, it's hard to finance, interest costs are higher. So everything about development's really hard right now. So we think there's opportunities for well-capitalized developers to earn pretty attractive risk-adjusted returns.

Speaker #4: So again, we look at everything, but development is certainly becoming more constructive.

Speaker #3: Thanks. And then just on the potential opportunity for dispositions, just given kind of Iran and some of the changes in the 10-year and maybe some of the macro headlines around AI, are you seeing any changes towards the type of capital that are interested in investing in office product and any changes in pricing?

Seth Bergey: Thanks. Then just on the potential opportunity for dispositions, you know, just given kind of Iran and some of the changes in the ten-year and maybe some of the macro headlines around AI, are you seeing any changes towards the type of capital that are interested in investing in an office product and any changes in pricing?

Speaker #4: I'd say the short answer is no, at least not yet. If you think about since last year, call it since early '25 through the disposition we had in January, we sold about 270 million at roughly right at an 8% cap rate, which sort of matched up with our acquisitions.

Ted Klinck: I'd say the short answer is no, at least not yet. You know, if you think about since last year, call it since early 2025, through the disposition we had in January, we sold about $270 million at, you know, roughly right at an 8% cap rate, which sort of matched up with our acquisitions. You know, we've got a lot of assets out in the market. I think, you know, we've said we're gonna try and get $190 to 210 million done by mid-year. We're on track to doing that, and we have other assets that are in the market as well and at various stages of the process. We have not seen really any changes whatsoever in the profile of the buyers.

Speaker #4: So we've got a lot of assets out in the market. I think we've said we're going to try and get 190 to 210 million done by mid-year.

Speaker #4: We're on track to doing that. And we have other assets that are in the market as well. And at various stages of the process.

Speaker #4: So, we have not seen really any changes whatsoever in the profile of the buyers.

Speaker #3: Great. Thank you.

Seth Bergey: Great. Thank you.

Speaker #2: Our next question comes from Blaine Heck from Wells Fargo. Please go ahead, your line is open.

Operator: Our next question comes from Blaine Heck from Wells Fargo. Please go ahead. Your line is open.

Speaker #3: Great. Thanks. Good morning. You've had a solid start to the year on the leasing side. So I was hoping you could comment on the leasing economics you've seen thus far and maybe how you would expect rent spreads and concessions to trend during the full year of 2026.

Blaine Heck: Great. Thanks. Good morning. You've had a solid start to the year on the leasing side, I was hoping you could comment on the leasing economics you've seen thus far and maybe how you would expect rent spreads and concessions to trend during the full year of 2026.

Speaker #4: Maybe I'll start, Blaine, and then Brian or Brendan can jump in. Look, as you alluded, we had a great start to the year with up almost 5% on cash, and 19-plus percent on GAAP.

Ted Klinck: Maybe I'll start, Blaine, and then Brian or Brendan Maiorana can jump in. Look, as you alluded, we had a great start to the year with, you know, up almost 5% on cash, 19 plus percent on GAAP. It, you know, can vary quarter to quarter. It can just be a mix, as you know. I think in general, the macro, our macro view is, look, there's a pretty good setup for office owners over the long term. Again, quarter to quarter can bounce around a little bit. Look, what we know is demand remains strong in our markets. We're not seeing any impact whatsoever thus far on AI. In fact, it's been a net positive to us. We've signed a couple AI related users, so we're not seeing anything there.

Speaker #4: And it can vary quarter to quarter. It can just be a mix, as you know. But I think, in general, our macro view is, look, there's a pretty good setup for office owners over the long term.

Speaker #4: Again, quarter to quarter, can bounce around a little bit. But look, what we know is demand remains strong in our markets. We're not seeing any impact whatsoever thus far on AI impact, on AI.

Speaker #4: In fact, it's been a net positive to us. We've signed a couple of AI-related users. So we're not seeing anything there. There's absolutely, to Brian's point and his prepared remarks, there's a dwindling supply of high-quality space in the BBDs.

Ted Klinck: There's absolutely, to Brian's point in his prepared remarks, there's a dwindling supply of high quality space in the BBDs. There's gonna be a shortage of this space, I think, in the next couple of years, given that no new construction. Ongoing construction's at a, I think, a historic low according to JLL. We're starting to see that, and that's gonna accrue to the benefit, I think, to office owners. Look, again, we don't know exactly what the metrics are gonna look like, but we do think there's a pretty good setup for owners of high quality office space in our BBDs. One other thing we've got a wind at our back is the in-migration. It's just continuing. Brian alluded to a few big announcements in Charlotte, but we're seeing that in Dallas.

Speaker #4: There's going to be a shortage of this space. I think in the next couple of years, given that the no new construction, ongoing construction's at a, I think, a historic low according to JLL.

Speaker #4: So we're starting to see that. And that's going to accrue to the benefit, I think, to office owners. So look, again, we don't know exactly what the metrics are going to look like, but we do think there's a pretty good setup for owners of high-quality office space in our BBDs.

Speaker #4: And then also, one other thing we've got as a wind at our back is the immigration. It's just continuing. Brian alluded to a few big announcements in Charlotte, but we're seeing that in Dallas.

Speaker #4: We're seeing that in other markets as well. Obviously, to varying degrees, but just in general, everything about the supply-demand backdrop feels pretty good right now.

Ted Klinck: We're seeing that in other markets as well, obviously to varying degrees. Just in general, everything about the supply demand backdrop feels pretty good right now.

Brian Leary: Blaine, this is Brian. I might just add a little anecdote. Hard to add on to that, we've mentioned on previous calls that we have been proactive in many cases in connecting with customers well in advance of expirations since we had term and arguably, kind of a caps market to push out those extensions. Because we don't have pending secured debt expirations and things like that, we could look beyond. They're now reaching out to us too. That's a kind of unique change. They wanna secure where they're at. They wanna secure terms and not get kind of caught at a mark to market a few years down. I think that's also helpful.

Speaker #3: Blaine, this is Brian. I might just add a little anecdote. Hard to add on to that. But we've mentioned on previous calls that we have been proactive in many cases in connecting with customers who are in advance of expirations, since we had term and arguably kind of a captured market to push out those extensions.

Speaker #3: Because we don't have pending secured debt expirations and things like that, we could look beyond. And they're now reaching out to us too. So that's kind of a unique change.

Speaker #3: They want to secure where they're at. They want to secure terms and not get kind of caught at a mark-to-market a few years down.

Speaker #3: So I think that's also helpful. And so if you think about that K-shaped recovery, well, maybe it's not universal in terms of the entire portfolio, but we feel really good that the great majority is on the top side of that K, and we're benefiting from that.

Brian Leary: If you think about that K shape re-recovery, well, maybe it's not universal in terms of the entire portfolio, but we feel really good that the great majority is on the top side of that K, and we're benefiting from that.

Speaker #1: Great. That's I wanted to follow up on your commentary on the potential for build-to-suite opportunities. Are there specific markets that you're seeing that demand increase in?

Blaine Heck: Great. That's helpful color. Ted, I wanted to follow up on your commentary on the potential for build-to-suit opportunities. Are there specific markets that you're seeing that demand increase in? Is there any color on the profile of tenants that you might be talking to? Lastly, would those potential build-to-suits occur on land you already own, or might you need to acquire some land if those come to fruition?

Speaker #1: Is there any color on the profile of tenants that you might be talking to? And then lastly, would those potential build-to-suits occur on land you already own, or might you need to acquire some land if those come to fruition?

Speaker #4: Yeah. Let me make sure I hit all these. But market-wise, there's various markets. So multiple markets it's some of our top markets. I don't want to get real specific.

Ted Klinck: Yeah. Let me make sure I hit all these. Market-wise, there's various markets, so multiple markets. You know, it's some of our top markets. I don't wanna get real specific. We're competing on some of these, and some of them are still multi-state competitions as well that, you know, we haven't even won it from a market perspective. It's in our larger markets, as you'd expect. And customer-wise, it varies from. It can be financial services, regular corporates as well. Really, it varies across the board there. I'd say there's no real theme to it. The only theme being there's a shortage of space in the market, in the sub-market they want to be in. Across the board, but it is in our larger markets, but multiple markets.

Speaker #4: We're competing on some of these. And some of them are still multi-state competitions as well that we haven't even wanted from a market perspective.

Speaker #4: But it's in our larger markets, as you'd expect. And customer-wise, it's various—from financial services to regular corporates as well. So, really, it varies across the board there.

Speaker #4: I'd say there's no real theme to it. The only theme being there's a shortage of space in the market in the submarket they want to be in.

Speaker #4: So across the board, but it is in our larger markets. But multiple markets.

Speaker #1: Great. That's helpful. And then, is it on land that you already own, or might you have to go out and purchase?

Blaine Heck: Great. That's helpful. Is it on land that you already own or might you have to go out and purchase?

Speaker #4: Yeah. Sorry about that. I missed that one. It's both.

Ted Klinck: Yeah, sorry about that. I missed that one. It's both.

Speaker #1: No problem. Okay. Thank you.

Blaine Heck: No problem. Okay. Thank you.

Brian Leary: Blaine, it's Brian. I just wanna be clear. It's, we wouldn't go out and buy land to land bank. I think it would only be subject to a build to suit that's there. I don't want anybody to get the impression that the land inventory is gonna go up. It's more likely to go down from here.

Speaker #3: I just want to be clear. We wouldn't go out and buy land to land bank. I think it would only be subject to a build-to-suit that's there.

Speaker #3: So I don't want anybody to get the impression that the land inventory is going to go up. It's more likely to go down from here.

Speaker #1: Right. Okay. Thanks a lot for the color.

Blaine Heck: Right. Okay. Thanks a lot for the color.

Speaker #2: Our next question comes from Peter Abramowitz from Deutsche Bank. Please go ahead. Your line is open.

Operator: Our next question comes from Peter Abramowitz from Deutsche Bank. Please go ahead. Your line is open.

Speaker #5: Yes. Thank you for taking the questions. I think last quarter, you talked about you needed around 700,000 square feet this year of vacancy leasing that would actually take occupancy.

Peter Abramowitz: Yes. Thank you for taking the questions. I think last quarter you talked about, you needed around 700,000 sq ft this year of vacancy leasing that would actually take occupancy, to kind of hit the midpoint of your guidance and also mentioned, I think a retention rate of around 35% or 40% on your 2026 expirations. Just curious, I guess on the leasing you did this quarter, you know, the 300,000 sq ft of new leasing, how much of that will kind of go toward that 700,000, for the full year that'll actually take occupancy before year-end? Is kind of the math still the same on the retention and renewal side as well?

Speaker #5: To kind of hit the midpoint of your guidance and also mentioned I think a retention rate of around 35 or 40 percent under 26 expirations.

Speaker #5: So just curious, I guess on the leasing you did this quarter, the 300,000 square feet of new leasing, how much of that will kind of go toward that 700,000 for the full year that'll actually take occupancy before year-end?

Speaker #5: And is kind of the math still the same on the retention and renewal side as well?

Speaker #3: Yeah. Hey, Peter. It's Brendan. Yeah. Good question. So the math pretty much rolls forward from everything that we did in the first quarter. And so the good thing is we moved that leased rate up.

Brendan Maiorana: Yeah. Hey, Peter, it's Brendan. Yeah, good question. The math pretty much rolls forward from everything that we did in Q1. The good thing is we moved that leased rate up. I think we had talked about, at the beginning of the year that we had about 1.2 million square feet of leases that were signed that would commence by the end of 2026. We have moved a number of those leases into occupancy during Q1, but, fortunately, we've replaced that, we still have about 1.2 million square feet of signed leases that will commence by the end of the year. We had expirations.

Speaker #3: I think we had talked about at the beginning of the year that we had about 1.2 million square feet of leases that were signed that would commence by the end of 2026.

Speaker #3: We have moved a number of those leases into occupancy during the first quarter, but fortunately, we've replaced that. And so we still have about 1.2 million square feet of signed leases that will commence by the end of the year.

Speaker #3: And then we had expirations. So what we have out of the remaining expirations, there's probably somewhere in the neighborhood of 850 to 900,000 square feet of likely kind of move-outs based on what's left over.

Brendan Maiorana: What we have out of the remaining expirations, there's probably somewhere in the neighborhood of 850,000 to 900,000 sq ft of likely kind of move-outs based on what's left over. That leaves us positive net absorption from 3/31 of 300,000+ sq ft, which means we have another 300,000 through to 400,000 sq ft to sign and start to get into this year. We feel good about that. That's down from that 700 that you mentioned kind of at the beginning of the year. And if we keep that pace of roughly 100,000 sq ft of new per month, that kind of puts us right on track to get to the midpoint of that year-end occupancy range of 87.5%.

Speaker #3: So that leaves us positive net absorption from 331 of 300-plus thousand square feet, which means we have another 300 to 400 thousand square feet to sign and start to get into this year.

Speaker #3: So we feel good about that. So that's down from that 700 that you mentioned kind of at the beginning of the year. And if we keep that pace of roughly 100,000 square feet of new per month, that kind of puts us right on track to get to the midpoint of that year-end occupancy range of 87,500.

Speaker #5: Okay. I appreciate that. That's helpful. Thanks, Brendan. And then, on the Richmond sales, I think you talked about sort of an overall blended cap rate for sales.

Peter Abramowitz: Okay. I appreciate that. That's helpful. Thanks, Brendan. Then on the Richmond sales, I think you talked about sort of an overall blended cap rate for sales last year through January, but I wanted to ask, what was the cap rate specifically on that portfolio that you sold in Richmond?

Speaker #5: Last year through January, but I wanted to ask, what was the cap rate specifically on that portfolio that you sold in Richmond?

Speaker #4: Yeah, Peter, it was, again, the blended that's up on the upper end of that. I think it was maybe a low double-digit type cap rate, but very low double-digit.

Ted Klinck: Peter, it was again the blended. You know, that's up on the upper end of that. I think it was a, you know, maybe a low double digit type cap rate, but very low double digit.

Speaker #5: Okay, and that's kind of incorporated in that blended number—you said around 8%?

Peter Abramowitz: Okay. That's kind of incorporated in that blended number, I think you said around 8%?

Speaker #4: That's correct.

Ted Klinck: That's correct.

Speaker #5: Okay, okay, gotcha. And then one more, if I could. It looks like, in the same-store pool, operating expense growth was a little bit elevated in the quarter.

Peter Abramowitz: Okay. Okay. Gotcha. Then one more if I could. It looks like the in the same store pool, operating expense growth was a little bit elevated in the quarter. Was there anything kind of unique to Q1 results that you wanted to call out or anything that we should kind of be mindful of going forward?

Speaker #5: Was there anything kind of unique to first quarter results that you wanted to call out, or anything that we should kind of be mindful of going forward?

Speaker #3: Yeah, Peter. Just as you can probably expect from the pretty cold weather particularly kind of in February. So utility costs were up pretty significantly, kind of year-over-year.

Brendan Maiorana: Yeah, Peter. Just as you can probably expect from the winter, right, we had, you know, some pretty cold weather, particularly kind of in February. Utility costs were up pretty significantly kind of year-over-year. That really drove the sizable increase in expenses. That was probably the biggest one that's there. You know, given we were, I think, -60 basis points on same store in the quarter, we're expecting roughly flat kind of for the year. We think that that number is probably gonna be low again in Q2 and then positive in the H2 of the year to average out to be flat for the full year on a cash basis and positive on a GAAP basis.

Speaker #3: That really drove the sizable increase in expenses. That was probably the biggest one that's there. Given we were I think negative 60 basis points on same-store in the quarter and we're expecting roughly flat kind of for the year, we think that that number is probably going to be low again in Q2 and then positive in the back half of the year to average out to be flat for the full year.

Speaker #3: On a cash basis. And positive on a gap basis.

Speaker #5: All right. That's all for me. Thank you.

Peter Abramowitz: All right. That's all for me. Thank you.

Speaker #2: Our next question comes from Ronald Camdem from Morgan Stanley. Please go ahead. Your line is open.

Operator: Our next question comes from Ronald Kamdem from Morgan Stanley. Please go ahead, your line is open.

Brendan Maiorana: Great. Just following up on that sort of same store thread, I just wonder if you can give some of the breadcrumbs as we're thinking about into 2027. As the occupancy starts to ramp, presumably you'd be at a better pace as you're comping into next year. Any other sort of puts and takes that we should be thinking about, potential acceleration? Thanks. Yeah, Ron. Yeah, thanks for the question. Yeah, I think you'll see, you know, that kind of second half 2026 improvement in same store, I think in all likelihood carries into 2027. You should see good same store results there.

Ronald Kamdem: Great. Just following up on that sort of same store thread, I just wonder if you can give some of the breadcrumbs as we're thinking about into 2027. As the occupancy starts to ramp, presumably you'd be at a better pace as you're comping into next year. Any other sort of puts and takes that we should be thinking about, potential acceleration? Thanks.

Speaker #6: Great. Just following up on that sort of same-store thread. And I just wonder if you can give some of the breadcrumbs as we're thinking about into 2027.

Speaker #6: So as the occupancy starts to ramp, presumably, you'd be in a better pace. As you're comping into next year, any other sort of puts-and-takes that we should be thinking about potential acceleration?

Speaker #6: Thanks.

Speaker #3: Yeah, Ron, yeah. Thanks for the question. Yeah, I think you'll see that kind of second half '26 improvement in same-store. I think in all likelihood, it carries into '27.

Brendan Maiorana: Yeah, Ron. Yeah, thanks for the question. Yeah, I think you'll see, you know, that kind of second half 2026 improvement in same store, I think in all likelihood carries into 2027. You should see good same store results there. I think if from an earnings perspective, I can kind of give some breadcrumbs there in terms of thinking about H1 of this year and then as you go into the H2 of this year, which should be helpful as you think about 2025 numbers. I mentioned in prepared remarks, we had the gain on the third party brokerage sale, we had the term fee. Those combined were $0.03 in the quarter. G&A is similarly sort of $0.03 higher in Q1.

Speaker #3: So you should see good same-store results there. I think if from an earnings perspective, what I can kind of give some breadcrumbs there in terms of thinking about first half of this year and then as you go into the back half of this year, which should be helpful as you think about next year numbers, we had I mentioned in prepared remarks, right, we had the gain on the third-party brokerage sale.

Brendan Maiorana: I think if from an earnings perspective, I can kind of give some breadcrumbs there in terms of thinking about H1 of this year and then as you go into the H2 of this year, which should be helpful as you think about 2025 numbers. I mentioned in prepared remarks, we had the gain on the third party brokerage sale, we had the term fee. Those combined were $0.03 in the quarter. G&A is similarly sort of $0.03 higher in Q1. Those things kind of offset each other. I think we’ve got cap interest that will go away on 23Springs in Midtown East. That’s probably $0.02. That is probably partially offset by a little higher NOI in Q2.

Speaker #3: We had the term fee. Those combined were $0.03 in the quarter. G&A is similarly sort of $0.03 higher in the first quarter.

Speaker #3: So those things kind of offset each other. I think we've got cap interest that will go away on '23 Springs and Midtown East. That's probably a couple of pennies that is probably partially offset by a little higher NOI.

Brendan Maiorana: Those things kind of offset each other. I think we’ve got cap interest that will go away on 23Springs in Midtown East. That’s probably $0.02. That is probably partially offset by a little higher NOI in Q2. We mentioned that we've got the $200 million of dispositions that we expect to kind of have. That will be a little bit dilutive in terms of we're just gonna kinda pay down the line of credit and probably keep the remainder in cash for the balance of the year in preparation for paying off the 2027 bond. All that means probably your Q2 is gonna be a little lower than where Q1 was from an FFO perspective. If you think about getting to the midpoint of guidance ex land sale gains, it obviously implies a pretty meaningful ramp in the H2 of the year.

Speaker #3: In Q2, and then we mentioned that we've got the 200 million of dispositions that we expect to kind of have and that will be a little bit diluted in terms of we're just going to kind of pay down the line of credit and probably keep the remainder in cash for the balance of the year in preparation for paying off the 2027 bond.

Brendan Maiorana: We mentioned that we've got the $200 million of dispositions that we expect to kind of have. That will be a little bit dilutive in terms of we're just gonna kinda pay down the line of credit and probably keep the remainder in cash for the balance of the year in preparation for paying off the 2027 bond. All that means probably your Q2 is gonna be a little lower than where Q1 was from an FFO perspective. If you think about getting to the midpoint of guidance ex land sale gains, it obviously implies a pretty meaningful ramp in the H2 of the year. I think that's positive kinda as you think about the H2 of 2026 and then ultimately into 2027.

Speaker #3: So all that means probably your second quarter is going to be a little lower than where Q1 was, from an FFO perspective. And then if you think about getting to the midpoint of guidance, ex land sale gains, it obviously implies a pretty meaningful ramp in the back half of the year.

Speaker #3: So I think that's positive kind of as you think about the second half of '26 and then ultimately into '27.

Brendan Maiorana: I think that's positive kinda as you think about the H2 of 2026 and then ultimately into 2027.

Speaker #6: Got it. That's helpful. My second question is just on the capital recycling front. So on the buy side, is it all— it sounds like Dallas Odyssey is really interesting.

Ronald Kamdem: Got it. That's helpful. My second question is just on the capital recycling front. So on the buy side, it sounds like Dallas obviously is really interesting. Is the acquisition opportunities all in existing markets or is there some new markets in there? Then on the sell side, maybe an update on just the Pittsburgh portfolio situation and what you think timing, maybe too soon for pricing, but that'd be helpful as well, could be on that. Thanks.

Speaker #6: Is the acquisition opportunities all in existing markets, or is there some new markets in there? And then on the sell side, maybe an update on just the Pittsburgh portfolio situation and what you think timing maybe too soon for pricing, but that'd be helpful as well.

Speaker #6: Could be on that. Thanks.

Speaker #4: Sure, Ron. On the acquisition side, yeah, we're primarily focused on our existing footprint. We're very pleased with our footprint. We do want to grow in Dallas over time.

Ted Klinck: Sure, Ron. On the acquisition side, yeah, we're primarily focused on our existing footprint. We're, you know, we're very pleased with our footprint. We do wanna grow in Dallas over time, so we'll see where the acquisitions are. You sorta gotta go where the opportunity is. It's largely or entirely in our existing markets for now. On the dispo, really no update on Pittsburgh. We are gonna be bringing to market one of the smaller assets here soon. For the big asset, PPG Place, really no update. We're continuing to get some leasing done before we bring it to market. I think we're pleased with the capital markets are improving, both the debt and the equity capital markets.

Speaker #4: So we'll see where the acquisitions are. You sort of got to go where the opportunity is. But so it's largely in our entirely in our existing markets for now.

Speaker #4: And then, on the dispo, really no update on Pittsburgh. We are going to be bringing to market one of the smaller assets here soon.

Speaker #4: But for the big asset, PPG Place, really no update. We're continuing to get some leasing done before we bring it to market. I think we're pleased with the capital markets are improving both the debt and the equity capital markets.

Speaker #4: So I think we're getting closer to launching, but haven't set a date yet. We're trying to nail down a few leases before we do that.

Ted Klinck: I think we're getting closer to launching, but haven't set a date yet. We're trying to nail down a few leases before we do that.

Speaker #6: Great. That's it for me. Thank you.

Ronald Kamdem: Great. That's it for me. Thank you.

Speaker #2: Our next question comes from Dylan Brzezinski from Green Street. Please go ahead. Your line is open.

Operator: Our next question comes from Dylan Burzinski from Green Street. Please go ahead. Your line is open.

Speaker #7: Hey, guys. Thanks for taking the question. I guess just one on the build-to-suit opportunities. What sort of stabilized yield on cost would you guys require to kick one of those off in today's environment?

Dylan Burzinski: Hey, guys. Thanks for taking the question. I guess just on the build-to-suit opportunities, what sort of stabilized yield on cost would you guys require to kick one of those off in today's environment?

Speaker #4: Yeah, Dylan, again, it's hard to do a comparison or even hard to say. I mean, we don't really talk about that just from a competitive standpoint.

Ted Klinck: Yeah, Dylan, again, it's hard to do a comparison or hard to say. I mean, we don't really talk about just from a competitive standpoint. Virtually every deal can be different. It's obviously based on the market, the submarket, the credit, the term, what annual bumps you're getting. It's hard to say. What I would tell you, though, is on a risk-adjusted basis, we think there are pretty attractive opportunities out there right now.

Speaker #4: And virtually every deal can be different. It's obviously based on the market, the sub-market, the credit, the term, what annual bumps you're getting. So it's hard to say what I would tell you, though, is on a risk-adjusted basis, we think they're pretty attractive opportunities out there right now.

Speaker #7: And then I guess just thinking about sort of '27 and obviously not going to get into guidance, but retention around 40% this year, I think, for '26 expirations.

Dylan Burzinski: I guess just thinking about sort of 2027 and obviously not going to get any guidance, but retention around 40% this year, I think, for 2026 expirations. Do you guys sort of view that as a low point in retention as we think about 2027 and beyond? Or is there any one larger tenants in 2026 that might not make sense to use that as, like a 2027 assumption? Just sort of trying to get a sense for, you know, the trajectory on retention as we think about, you know, the outer years.

Speaker #7: Do you guys sort of view that as a low point in retention as we think about '27 and beyond, or is there any one larger tenants in '26 that might not make sense to use that as a '27 assumption just sort of trying to get a sense for the trajectory on retention as we think about the outer years?

Speaker #3: Yeah, Dylan. It's Brendan. Yeah. I think your number is correct on '26 in that 40 percentage range. As we were kind of migrating into '26, but just keep in mind that the '26 renewals most of the '26 renewals that we did, we do early.

Brendan Maiorana: Yeah, Dylan, it's Brendan. Yeah, I think your number is correct on 2026 in that, you know, 40% range as we were kind of migrating into 2026. Just keep in mind that the 2026 renewals, most of the 2026 renewals that we did, we do early. As you kind of migrate into any given year, you've got adverse selection bias because you early renew folks, and then the ones who you don't renew, you know, they remain in that expiration schedule. I think as we think about 2027 as of now, we're probably somewhere in that 50% to 60% retention range on what's remaining in 2027.

Speaker #3: So as you kind of migrate into any given year, you've got adverse selection bias because you early renew folks, and then the ones who you don't renew, they remain in that expiration schedule.

Speaker #3: I think as we think about '27 as of now, we're probably somewhere in that 50 to 60 percent retention range on what's remaining in '27.

Speaker #3: And even that number is probably lower than what the ultimate kind of likelihood is, given that we've got a number of expirations in '27 where we've got the underlying tenant, but they have subleased to somebody else.

Brendan Maiorana: Even that number is probably lower than what the ultimate likelihood is, given that we've got a number of expirations in 2027 where we've got the underlying tenant, but they have subleased to somebody else. That assumes that that underlying tenant vacates, and then we renew with the subtenant. That's not part of our retention calculation, so that would be part of a move-out and then signing on a new. I think we'll do pretty well on 2027 in terms of retention, which creates a good environment for us to continue to drive occupancy higher from year-end 2026 as we migrate throughout 2027.

Speaker #3: That assumes that that underlying tenant vacates, and then we renew with the subtenant. That's not part of our retention calculation. So that would be part of a move out and then signing on a new.

Speaker #3: So I think we'll do pretty well on '27 in terms of retention, which creates a good environment for us to continue to drive occupancy higher from year-end '26 as we migrate throughout '27.

Speaker #7: Okay, great. That's incredibly helpful, Brendan. Thanks so much.

Dylan Burzinski: Okay, great. That's incredibly helpful, Brendan. Thanks so much.

Speaker #2: As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. Our next question comes from Vikram Malhotra from Mizuho.

Operator: As a reminder to ask a question, please press star followed by the number one on your telephone keypad. Our next question comes from Vikram Malhotra from Mizuho. Please go ahead. Your line is open.

Speaker #2: Please go ahead. Your line is open.

Speaker #6: Morning. Thanks for taking the question. Just two quick ones. I guess first, on the trajectory from here, what do you kind of need to do?

Vikram Malhotra: Morning. Thanks for taking the question. Just two quick ones. I guess first, you know, on the trajectory from here, what do you kind of need to do, maybe I missed this, what do you need to do new leasing-wise for the rest of the year, kind of to hit that, you know, higher end or maybe even the midpoint of the year-end occupancy? Is there anything new in terms of additional move-outs or anything big we should just remind us going into next year in terms of, you know, potential move-outs? That's just the first and then the second. You know, AI and leasing's been a big topic in San Fran in particular. Obviously, we've heard some in New York.

Speaker #6: Maybe I missed this. What do you need to do, new leasing-wise, for the rest of the year, kind of to hit that higher end, or maybe even the midpoint, of the year-end occupancy?

Speaker #6: And then, is there anything new in terms of additional move-outs or anything big we should just remind ourselves of going into next year, in terms of potential move-outs?

Speaker #6: So that's just the first. And then the second, AI and leasing has been a big topic in San Fran in particular. Obviously, we've heard some in New York.

Speaker #6: I'm just wondering, in your markets, are you hearing any AI-oriented firms look for space or expand away from the West Coast? Thanks.

Vikram Malhotra: I'm just wondering in your markets, are you hearing any AI-oriented firms look for space or expand away from sort of the West Coast? Thanks.

Speaker #3: Hey, Vikram. It's Brendan. Maybe I'll start on just kind of leasing. Needed to kind of hit those year-end numbers. And then turn it over to Ted and Brian to talk about some of the specifics.

Brendan Maiorana: Hey, Vikram, it's Brendan. I'll start on just kind of leasing, needed to kind of hit those year-end numbers and then turn it over to Ted and Brian to talk about some of the specifics on the role and AI. Just in terms of leasing, I would say to get to the year-end 2026 occupancy range that we have, and let's talk about the midpoint, we think that's where we probably need to do roughly 100,000 square feet of new leasing per month, kind of through probably June or July. That kind of gets us pretty well positioned. We think that those leases, in all likelihood, are going to move into occupancy by end of year.

Speaker #3: On the role in AI, so just in terms of leasing, I would say to get to the year-end 2026 occupancy range that we have—and let's talk about the midpoint—we think that's where we probably need to do roughly 100,000 square feet of new leasing per month, kind of through probably June or July.

Speaker #3: That kind of gets us pretty well positioned. And those leases will move into we think that those leases in all likelihood are going to move into occupancy by end of year.

Speaker #3: But I think to continue to have occupancy move higher, as we go forward into 2027, we'd like to see that pace continue in the back half of the year.

Brendan Maiorana: I think to continue to have occupancy move higher as we go forward into 2027, we'd like to see that pace continue in the back half of the year, and that, in all likelihood, will create a good environment for us to continue to drive occupancy higher as we go throughout 2027. I think we feel like we're in good shape kinda as, you know, we're through the Q1 of the year here. We think we feel positive about the backdrop to allow us to continue to drive occupancy higher in 2027. I don't think there's any significant expirations in 2027 that we're particularly worried about.

Speaker #3: And that in all likelihood will create a good environment for us to continue to drive occupancy higher as we go throughout 2027. So I think we feel like we're in good shape kind of as we're through the first quarter of the year here.

Speaker #3: And we think we feel positive about the backdrop to allow us to continue to drive occupancy higher in '27. And I don't think there's any significant expirations in '27 that we're particularly worried about.

Speaker #4: And then on the second question—AI—I alluded to it, maybe, I think, earlier in the call. We've signed one AI-related tenant. They're focused on data centers.

Ted Klinck: On the second question, AI, I alluded to it maybe, I think earlier in the call. We've signed one AI related tenant. They're focused on data centers, and that was in Dallas, Vikram. Other than that, throughout our markets, we really haven't seen much AI demand at all.

Speaker #4: And that was in Dallas. Vikram, other than that, throughout our markets, we really haven't seen much AI demand at all.

Speaker #7: Thank you.

Vikram Malhotra: Thank you.

Speaker #2: Our last question comes from Nick Fillman from Baird. Please go ahead. Your line is open.

Operator: Our last question comes from Nicholas Thillman from Baird. Please go ahead. Your line is open.

Operator: Our last question comes from Nick Thillman from Baird. Please go ahead. Your line is open.

Speaker #8: Hey, good morning, guys. Can you hear me?

Nicholas Thillman: Hey, good morning, guys. Can you hear me?

Nick Thillman: Hey, good morning, guys. Can you hear me?

Speaker #4: Yes.

Brendan Maiorana: Yes.

Speaker #8: Yes, okay. It cut out for a second—sorry. Just one quick question on overall utilization within the portfolio, and just maybe getting an understanding of sublease availability within the portfolio.

Brendan Maiorana: Yes.

Nicholas Thillman: Okay. Like, cut out for a second. Sorry. Just one quick question on just overall utilization within the portfolio and just maybe getting an understanding of just sublease availability within the portfolio. Do you guys have, like, a number on just occupied space that's currently listed for sublease?

Nick Thillman: Okay. Like, cut out for a second. Sorry. Just one quick question on just overall utilization within the portfolio and just maybe getting an understanding of just sublease availability within the portfolio. Do you guys have, like, a number on just occupied space that's currently listed for sublease?

Speaker #8: Do you guys have a number on just occupied space that's currently listed for sublease?

Speaker #4: Yeah. Actually, our sublease space is actually going down. I think it was down six or seven percent last quarter. Did something we monitor. Now, some of it just to be just to be transparent, some of it is it goes to direct vacancy.

Ted Klinck: Actually, our sublease space is actually going down. I think it was down 6% or 7% last quarter. It is something we monitor. Some of it just to be, you know, just to be transparent, some of it is, it goes to direct vacancy, but some is being taken off the market and utilized by our customers. You know, we have roughly 500, a little over 500,000 sq ft in our portfolio that is currently being subleased today. It is getting better, and we're seeing it both getting better in our portfolio, but the market as well.

Speaker #4: But some is being taken off the market. And utilized by our customers. So we have roughly 500, a little over 500,000 square feet in our portfolio that is currently being subleased.

Speaker #4: Today, but it is getting better. And we're seeing it both getting better in our portfolio, but the market as well.

Speaker #7: That was it for me. Thanks, all.

Nicholas Thillman: That was it for me. Thanks, all.

Nick Thillman: That was it for me. Thanks, all.

Speaker #4: Great. Thanks, Nick.

Ted Klinck: Great. Thanks, Nick.

Speaker #2: We have no further questions. I would like to turn the call back over to Ted Klinck for any closing remarks.

Operator: We have no further questions. I would like to turn the call back over to Ted Klinck for any closing remarks.

Speaker #4: Well, thanks, everybody, for joining the call. And thanks for your interest in Highwoods. We look forward to seeing you all at NAREIT, if not before, or on the next call.

Ted Klinck: Well, thanks, everybody, for joining the call, and thanks for your interest in Highwoods. We look forward to seeing you all at Nareit, if not before or the next call. Thank you.

Speaker #4: Thank you.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Q1 2026 Highwoods Properties Inc Earnings Call

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