Highwoods Properties, Inc.

Over to your host, Brendan Majorana, Chief Financial Officer. You may proceed.

Thank you, operator, and good morning, everyone. Joining me on the call this morning are Ted Klink, 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 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, Brendan, and good morning, everyone. Before I talk about our exceptional fourth quarter and full year of leasing, I'd like to start by outlining the significant growth potential we have over the next few years. we have significant upside potential in our core operating portfolio. For several years, we've been transparent about large customer move-outs that we knew would be occurring in late 2024 and early 2025. These are now upon us, which has, as anticipated, driven occupancy well below stabilized levels and resulted in temporarily low NOI, FFO, and cash flow. Importantly, the bulk of this vacancy is concentrated in four core buildings, some of which have already been backfilled, but where occupancy hasn't yet commenced, and others where we have good prospect activity. Compared to our 2025 outlook, these four buildings have over 25 million of stabilized annual NOI upside and even more meaningful growth in annual cash flow. Second, we have significant upside potential as our development pipeline continues to deliver and stabilize. We have two development properties that have delivered but haven't yet stabilized, Glen Lake 3 in Raleigh and Granite Park 6 in Dallas. But we're leasing activity is robust with 142,000 square feet signed in the last quarter alone and strong prospects for additional space. The annual NOI upside upon stabilization of these two high-quality development projects compared to our 2025 outlook is nearly $10 million. Importantly, because we're no longer capitalizing any costs on these projects, all NOI growth will drop to the bottom line FFO and cash flow. Plus, we have two additional developments, 23 Springs and Uptown Dallas, at Midtown East and Tampa's West Shore BBD that will deliver this year and are projected to generate over 20 million of annual NOI upon stabilization. Third, we have significant upside potential from future investments. We believe there will be compelling acquisition opportunities during 2025. As you know from last Monday's press release, In late 2024 and early 2025, we proactively raised 215 million with non-core dispositions and equity issued through our ATM program to bolster our dry powder. We expect to deploy this capital during the year by acquiring high quality assets with strong cash flows and meaningful long-term upside. None of this potential future growth is included in our initial 2025 FFO outlook. Given the embedded upside within our operating portfolio and development pipeline, combined with meaningful dry powder, we couldn't be more excited about the next few years. Now, turning to our fourth quarter and full year 2024 performance. The fourth quarter was a repeat of the first three quarters of 2024. Solid financial results, coupled with very strong leasing activity, which sets the foundation for growth in late 2025 and beyond. In the fourth quarter, we delivered FFO of 85 cents per share, in line with our outlook, including a penny of non-cash write-offs that were not in our outlook. For the full year, FFO was $3.61 per share, almost 2% higher than the midpoint of our original outlook provided last February, despite selling over 100 million of non-core properties and interest rates that remained higher than expected, neither of which were included in our original outlook. Our robust leasing volume and economics were the standout of the fourth quarter and full year. During the quarter, we leased 1.3 million square feet of second gen space, including 370,000 square feet of new leases, plus nearly 100,000 square feet of net expansions. For the year, our second gen new leasing volume was 1.6 million square feet, our highest volume in 10 years. Our total second gen leasing volume for the year was 4 million square feet, and our weighted average lease term was 7.5 years, the highest in our history. This strong volume combined with lengthy terms demonstrates that businesses are willing to commit to their in-office workplace strategy if they can secure commute-worthy buildings in BBD locations with financially strong landlords. To this end, during the year, we signed second-gen leases that equate to total cash rent of a billion dollars, which is another record for Highwoods. And we signed an additional 140 million of total rent through first gen deals. During the fourth quarter, we renewed our two largest remaining 2026 expirations, both in Raleigh for over 200,000 square feet combined. Securing these two renewals leaves us with limited large role in 2026. Starting with the second half of 2025 and extending over the next several years, our rollover exposure is very manageable with very few known move outs. This optimistic outlook, coupled with the significant volume of signed leases in 2024 that haven't yet commenced, gives us confidence that we'll see meaningful growth in occupancy, noi and cash flow as we get into late 2025 and beyond turning to investments last week we announced the sale of 166 million of non-core properties in tampa and raleigh these include a 170 000 square foot non-core office building in north raleigh for 21.4 million in the fourth quarter and three non-core buildings comprising 616 000 square feet in Tampa for $145 million in early February. These properties, which were 88% occupied and 36 years old on average, sold for a combined cash cap rate of 7.8% on projected 2025 NOI. These disposition proceeds are an attractive source of capital as we look to recycle into new investments over time. We're targeting up to 150 million of additional non-core dispositions this year. Any future sales aren't likely to close until after mid-year and are not included in our FFO outlook. In December, we acquired fee simple title to the land underneath our century center assets in Atlanta, which consists of 1.7 million square feet of office and 13 acres of developable land. C-Simple ownership provides us long-term flexibility and certainty. We believe there will be attractive acquisition opportunities over the next few years for well-capitalized owners such as Highwoods. As always, we'll be disciplined allocators of shareholder capital. You can expect any new investments will improve our overall portfolio quality, enhance our long-term growth rate, and strengthen our cash flows. Our development pipeline is now 59% leased, up from 49% last quarter, as we signed 161,000 square feet of first-gen leases. We're seeing the most activity at our two completed but not yet stabilized properties, Lynn Lake 3 in Raleigh and Granite Park 6 in Dallas. These properties, which are still one year away from projected stabilization, are combined 52% leased with healthy prospect activity. Our initial 2025 FFO outlook is $3.26 to $3.44 per share. The outlook includes the approximate 10 cents per share short-term dilutive effect from the 166 million of recent asset sales, the 52 million of equity raised in late 2024, and the purchase of the ground at Century Center. Our same property cash NOI growth outlook is negative 2% to negative 4%. We believe 2025 will be a temporary trough before resuming our trajectory of consistent same-store growth. Before I turn the call over to Brian, I want to further highlight why we're so optimistic about the next few years at Highwoods. First, the long-term outlook for our markets and BBDs is strong. As you know, there is limited new supply expected to be added over the next few years, and high-quality blocks of space are being absorbed. Our well-located, high-quality portfolio, reputation as a best-in-class operator, and strong financial sponsorship positions us to gain market share. Second, the volume of leasing completed over the last several quarters combined with limited rollover in late 2025 through 2027, has us positioned to grow occupancy, NOI, and cash flow as we move into late 2025 and thereafter. Third, we have several core assets with significant NOI growth potential where we have signed leases that won't contribute meaningfully to 2025 or where prospect activity is strong. Fourth, our development pipeline will deliver and stabilize over the next few years, which we project will result in 30 plus million of NOI above our 2025 outlook. And finally, our balance sheet is well positioned to take advantage of attractive acquisition opportunities we believe will materialize this year. To wrap up, we're not only optimistic because of our markets portfolio and balance sheet, but also because of our engaged, hardworking and talented teammates who drive our consistent success. I would like to thank our entire Highwoods team for their commitment and tireless dedication. It is their effort that has positioned us so well for the future. Brian.