Highwoods Properties, Inc.

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Brendan Mayorana. Brendan, please go ahead. 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 now turn the call over to Ted.

Thanks, Brendan, and good morning, everyone. We had another strong quarter with robust second-gen leasing and excellent financial results. We entered 2025 with two key priorities. First, continue to upgrade our portfolio quality by rotating out of slower growth, more -to-ex intensive properties, and rotating into higher growth assets that are more capital efficient. And second, make significant strides towards capturing the substantial NOI growth potential we have in our operating portfolio and development pipeline, which will drive meaningful organic growth in future years. We continue to make progress towards both of these priorities. In the second quarter, our leasing volumes were strong, including signing several second-gen new leases on spaces that are currently vacant, and we continue to make progress on the remaining availability at our development properties. While we didn't close any acquisitions or dispositions during the period, we're actively underwriting potential new investments and have numerous assets in the market for sale. We will continue to deliver on our proven strategy of rotating out of older, slower growth properties that are more cap-ex intensive into better located, higher growth assets that are more capital efficient. We continued our healthy leasing volume in the quarter with 920,000 square feet of second-gen leasing, including 370,000 square feet of new leasing. The consistent level of elevated leasing volumes for the past several quarters increases our confidence that our occupancy will steadily improve late in 2025 and escalate thereafter. We have also further unlocked the NOI growth potential in our four core assets with meaningful upside potential. As a reminder, our core four are Alliance Center in Buckhead and three assets in Nashville. Symphony Place in the CBD, Westwood South in Brentwood, and Park West in Franklin. We have forecasted 25 million of annual NOI upside just from stabilizing these core four. After our lease and performance this quarter, we now have 50% of this upside scotched with leases and we will have strong prospects for another 20%. Turning to our development pipeline, while we only signed 19,000 square feet during the quarter, we have advanced a number of prospects through the leasing process and remain confident we'll increase our lease rate by the end of the year. We have over 10 million of NOI growth potential at Glen Lake 3 in Raleigh and Granite Park 6 in Dallas. Two development properties that delivered in 2023 that are not yet stabilized. We have over 6 million of this NOI potential already signed, but where occupancy hasn't yet commenced. In addition, we have over 20 million of NOI growth potential at the two developments that delivered earlier this year. 23 Springs in Dallas and Midtown East in Tampa. Our first customers at these developments recently moved in and additional customers will take occupancy late in 2025 and in 2026. Combined, these two properties are 59% leased and we have strong prospects for another roughly 15%. Given the combination of high construction costs, elevated vacancy levels, limited financing availability and risk adjusted yield requirements, starting a new spec development continues to be difficult for anyone in this environment. However, the absence of new deliveries and the dwindling availability over the next few years creates an opportunity for meaningful rent growth and high quality second gen product. We're already seeing the benefits of limited supply as large blocks of high quality space across many of our markets are being absorbed, which is driving rent growth in the best locations across the Sun Belt. The powerful combination of signed leases moving into occupancy in our operating portfolio, ongoing stabilization of our development pipeline and continuous portfolio improvement should drive significant growth in earnings and cash flows in the foreseeable future. You may have seen some press recently about Ovation, our future mixed use development in Franklin outside of Nashville. We recently submitted our development plan to the city. We remain confident Ovation represents one of the best mixed use ground up development sites in the entire country and will be a significant opportunity to create sizable value for highwood shareholders. We are working with our partner in the city of Franklin to finalize development plans and do not expect any development announcements until late next year at the earliest. Turning to our performance, we delivered excellent financial results in the quarter, including cash flows that continue to be resilient, even with elevated leasing capex due to future occupancy build. We delivered FFO of 89 cents per share in the quarter. Our occupancy was roughly flat from Q1 at 85.6%, while our lease rate increased 80 basis points to 88.9%. Leasing is off to another strong start early in Q3, with over 300,000 square feet of second gen leases signed, including over 100,000 square feet of new leases. We remain optimistic we'll see the lease rate and occupancy levels increase by the end of the year. With our strong financial performance in Q2, an upbeat outlook for the balance of the year, we have once again raised the midpoint of our 2025 FFO outlook up 2 cents to a range of $3.37 to $3.45 per share. Since the beginning of the year, we've increased our FFO outlook by 6 cents at the midpoint, or nearly 2%. In conclusion, we're extremely excited about the next few years for Highwoods. We're operating in the strongest BBDs in the Sun Belt that continually have proven to be the places where talent and companies want to be. We have a clear pathway to meaningful growth, growth in earnings, growth in cash flow, and growth in NAV from our existing portfolio and development pipeline. Plus, we believe the next 12 months represents an excellent opportunity to deploy capital in new investments with strong returns and recycle out of older, non-strategic properties where risk investment-adjusted returns don't meet our objectives. With a strong balance sheet, including limited near-term debt maturities and ample liquidity, we are well positioned to execute on the opportunities ahead of us. Brian?