Highwoods Properties, Inc.

We'll now hand over to your host, Anna True. Please go ahead.

Thank you, Operator, and good morning, everyone. Joining me on the call this morning are Ted Klink, our Chief Executive Officer, Brian Leary, our Chief Operating Officer, and Brenda Majorana, our Chief Financial Officer. For your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplemental, they'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 EBITDAIR. 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. 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.

Thanks, Hannah, and good morning, everyone. Before I talk about our solid financial and operating results for 2023, let me start by first outlining our strategic priorities for the next several years. First, we will continue to improve the quality of our portfolio. We are laser focused on owning a portfolio that is resilient throughout all business cycles, well positioned to attract, retain, and return our customer's most valuable resource, their employees, to their workplaces. We do this by developing best in class properties, acquiring high quality assets with attractive risk adjusted returns, redeveloping and repositioning well-located properties where substantial upside exists and selling buildings that no longer meet our criteria. Second, we are focused on solidifying our rent roll and driving future occupancy. This means proactively renewing customers as early and prudently as possible and back-filling pockets of vacancy within the portfolio. We continue to be bullish on the long-term demographics of the Sun Belt. Simply put, We are in the best markets and best business districts to create long-term value for our shareholders. Third, we are laying the groundwork for future investment opportunities. We believe this cycle will present us with opportunities to create shareholder value by acquiring high-quality assets in the BBDs of high-growth markets. We will be patient, and we will be ready. And fourth, we will continue to maintain a best-in-class balance sheet. As demonstrated over the past 90 days, having ample liquidity and access to multiple sources of capital throughout the cycle is an important differentiator for us. We made meaningful progress in all of these strategic priorities during 2023. We sold over 100 million of non-core properties, including land, and made solid progress on our development pipeline with the completion of 2827 Peachtree, Granite Park 6, and Glen Lake 3. We expect these developments will provide meaningful growth in future years as they stabilize. Further, we completed significant higwitizing projects on existing buildings in Nashville and Raleigh, where we're already generating higher rental rates and increased leasing activity. We also made progress solidifying our future rent roll. We remain focused on our larger near-term expirations, and Brian will provide more details shortly. And we're pleased with the traction we've had in Atlanta, Nashville, and Tampa. Given the known move outs that we've discussed for some time, occupancy is likely to dip in late 2024 and early 2025. But we're encouraged by the activity we've seen throughout the portfolio. which has already translated into significant lease signings since the start of 2024. It's early, and while we don't expect a lot of transaction activity in the near term, we are setting the stage for future investments through exploratory discussions with owners and lenders of attractive properties in our markets. This is similar to the playbook we deployed in the years following the GFC. We further strengthened our balance sheet by raising nearly $600 million of debt capital during 2023. Plus, just a few weeks ago, we extended the term of our $750 million credit facility into 2029 with no change to the size or the borrowing spread. We now have over $900 million of current liquidity and no consolidated debt maturities until May 2026. We are confident in the long-term outlook for our markets and BBDs based on the limited new supply expected to be added over the next few years. The current supply pipeline in our markets is half of what it was just a few years ago, with most of these developments projected to deliver over the next four quarters. By this time next year, minimal new product is expected to be under construction. This tightening supply picture further adds to our confidence as we focus on leasing up high-quality blocks that are or will become available in our buildings. Our well-located and high-quality portfolio, reputation as a best-in-class operator, and strong financial sponsorship positions us to continue to gain market share. Turning to our results, we delivered FFO of 99 cents per share in the fourth quarter. with full year 2023 at $3.83 per share. Both the quarter and full year results included unusual items that net out to $0.08 of higher FFO. Excluding these items, our core 2023 FFO was $3.75 per share, a penny above the midpoint of our initial outlook. We are pleased with these financial results given asset sales and the unanticipated rise in interest rates during the year, neither of which were factored into our initial outlook. We expect to be a net seller again in 2024, with 75 to 200 million of non-core dispositions. Similar to 2023, the volume and timing of dispositions will depend on how conditions in the investment sales market play out. we do have about 75 million of properties under contract and expect those sales to close in the first half of the year. While we're actively building the foundation for future investment opportunities, we don't have any acquisitions included in our 2024 outlook. Our initial 2024 FFO outlook is $3.46 to $3.64 per share and same property cash and Y growth is projected to be positive 1% at the midpoint. In addition, we have backfilled a significant amount of larger known move-outs that impacted 2023 NOI and occupancy. And while these backfills won't meaningfully contribute to 2024, they will drive NOI in future years. We're also seeing good activity on backfilling some of the larger known move-outs later in 2024 and early 2025. While there is obviously continues to be headwinds in the office sector, we're optimistic about the future. First, we have significant organic growth potential within our current operating portfolio with high quality pockets of vacancy where we're seeing solid interest from prospects. Second, our 518 million development pipeline will provide meaningful upside as it delivers and stabilizes in the next few years. Third, our balance sheet is in excellent shape with ample liquidity and no need to raise capital for the next couple of years. And finally, our cash flows remain strong, even as we absorb headwinds from higher interest rates and investing higher tithing capital to generate higher returns on our existing portfolio. To wrap up, we're not only optimistic because of our markets and our portfolio, but also because of our engaged, hardworking, and talented teammates who drive our success day after day. I would like to thank the entire Highwoods team for their commitment and tireless dedication. It is their effort that has positioned us for success for many years to come. Brian?