Highwoods Properties, Inc.

Good morning and thank you for attending today's Hogwarts Properties Q1 2025 earnings call. My name is Jayla and I'll be a moderator for today. All lines will be muted in the presentation portion of the call with an opportunity for questions and answers at the end. I'd now like to turn the conference over to our host, Brendan Mayorano. Brendan, 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. We had a strong quarter executing on our key priorities and delivering solid financial results. Despite rising concern over the macroeconomic outlook and choppiness in the capital markets, we continue to set ourselves up for meaningful long-term growth while at the same time improving our portfolio quality and delivering financial results that were stronger than our original expectations. First, our investment activity was robust with the recycling of 145 million of non-core disposition proceeds into the $138 million acquisition of advanced auto parts tower a commute worthy class AA building in the vibrant North Hills BBD in Raleigh. This rotation of capital is a bullseye illustration of our investment objective of selling older capital intensive properties in non-BBD locations and rotating into high quality buildings in locations where people want to live, work, and play. This acquisition has meaningful long-term growth potential as existing rents are below market for North Hills, a BBD where we believe market rents will accelerate over the next several years. We now own nearly 650,000 square feet of Class AA office in North Hills with a diverse group of strong customers. Also, this leveraged neutral rotation of capital is immediately accretive to cash flow. Second, We placed in service 2827 Peachtree, a 79,135,000 square foot development in the Buckhead BBD of Atlanta, where we hold a 50% interest in the joint venture that developed and owns the property. 2827 Peachtree is 94% leased and 88% occupied. Third, we signed 97,000 square feet in the first gen leases in our development pipeline. Our 474 million pipeline is now 63% leased, up 5% from last quarter, even after placing in service the 94% leased 2827 peach tree development. We continue to garner solid interest in these best in class projects, which upon stabilization are projected to drive 30 million of incremental NOI above our 2025 outlook. Fourth, we leased 700,000 square feet of second-gen office space, including over 250,000 square feet of new leases, plus 43,000 square feet of net expansion leases. Leasing economics were strong, with net effective rents more than 20% higher than our prior five-quarter average, plus April leasing volumes have accelerated with over 200,000 square feet of new second gen lease volume in just the first four weeks of the second quarter. Highlighted by a 145,000 square foot lease with a new Highwoods customer at Symphony Place in Nashville. This lease is scheduled to commence Q2 26 and back fills nearly two thirds of the space from a customer who vacated the building earlier this year. Securing this long-term lease, coupled with strong interest from others in the market, further validates the prioritizing efforts underway at Symphony Place. During our February call, I highlighted several growth drivers for the next few years. The first of these is lease-up efforts at four core buildings with current elevated vacancy. Upon stabilization, these four buildings alone will drive 25 million of NOI growth above our 2025 outlook. With the just announced 145,000 square foot lease at Symphony Place, we have already locked in over 40% of this future upside with leases that have been signed but haven't yet commenced and with strong prospects for additional upside. The second growth driver previously highlighted is 10 million of future NOI upside from two 2023 development deliveries that have not yet stabilized, Glen Lake 3 in Raleigh and Granite Park 6 in Dallas. With the leases signed this quarter, we have now locked in over 60% of this future upside. While we're mindful of the current uncertainties around the macroeconomic environment, we're optimistic as we approach the midpoint of this year. given the level of activity we continue to see across our portfolio and our already executed lease deals. Turning to our quarterly results, we delivered FFO of 83 cents per share and generated healthy cash flow. As expected, our occupancy dipped due to known customer move outs that we have long communicated. We expect to drive occupancy growth over the next few years given our healthy backlog of signed but not yet commenced leases and much more manageable lease rule. With our strong financial performance in Q1, positive outlook for the balance of the year, and a creative acquisition of Advanced Auto Tower, we have raised the midpoint of our 2025 FFO outlook by 4 cents to a range of $3.31 to $3.47 per share. We continue to actively underwrite new investments. There are still many office owners that face near-term refinancing challenges or simply plan to reduce their allocations to office, which we expect will provide opportunities to deploy capital into additional commute-worthy properties. We are also actively prepping additional non-core assets for sale. Since 2019, we have sold over 1.5 billion of non-core properties and recycled the proceeds into higher quality, higher growth, and less capital-intensive commute-worthy office buildings. We expect to continue this strategy. Given the combination of high construction costs, elevated vacancy levels, and risk-adjusted yield requirements that we believe would make sense for our shareholders, we don't expect to announce any new development projects this year. While spec development deals continue to be difficult to pencil in this environment for us or anyone else, their absence creates the opportunity for significant rent growth and high-quality second-gen product as availability dwindles. We are having conversations with a few build-to-suit prospects with both existing companies in our BBDs and new-to-market users. While these conversations are all in the very early stage, the increase in activity is a good indicator of the health of the office sector and illustrates the importance of the workplace experience. In conclusion, we're bullish about the future of Highwoods. We're operating in the strongest BBDs in the Sunbelt that have continually proven to be the places where talent and companies want to be. We're making significant progress locking in our future organic growth drivers by signing long-term leases with strong customers, both in our operating portfolio and in our development pipeline. Finally, backed by a strong balance sheet with limited near-term maturities and ample liquidity, we are well positioned to execute on our proven strategy of asset recycling and drive our long-term growth rate even higher, further strengthen our cash flows, and improve our portfolio quality. Brian?