Highwoods Properties, Inc.

And thank you for joining today's Highwoods Properties Q3 2025 earnings call. My name is Regan, and I'll be your moderator today. All lines will be muted during the presentation portion of today's call with an opportunity for questions and answers at the end. And if you'd like to ask a question, you can do so by pressing star one on your telephone keypad. I want to pass the conference over to our host, Brendan Moriorana of Executive Vice President, Chief Financial Officer. Please 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. Finally, we know many of you will be attending Nate Reed's annual conference in December in Dallas. We are hosting a property tour the afternoon of Monday, December 8th to showcase our Uptown Dallas portfolio. If any of you would like to join the tour, please let us know. With that, I'll turn the call over to Ted.

Thanks, Brendan, and good morning, everyone. We entered 2025 focused on the following strategic priorities. Securing the embedded NOI growth potential in our operating portfolio by leasing up key vacancies. Capturing the embedded NOI growth potential in our development pipeline by leasing up our four completed but not yet stabilized assets. Continuing our proven playbook of recycling out of non-core assets That are more capex intensive into higher quality higher growth and better located properties have stronger long term cash flows and maintaining a strong and flexible balance sheet. We made meaningful progress on each of these priorities during the quarter and believe we have opportunities to advance our progress even more significantly over the next few quarters. First. Our second gen leasing volume was strong with several sizable new leases inked in what we call our core four operating properties that have elevated vacancy. Alliance Center in Atlanta, and Symphony Place, Park West, and Westwood South, all located in Nashville. We signed over 1 million square feet of second gen volume, 326,000 square feet of new leases. Our leasing volumes have been strong now for eight consecutive quarters. These strong volumes have driven our lease rate 340 basis points higher than our occupancy rate at quarter end, which explains why we are so confident occupancy will rise by year end 2025 and throughout 2026. Back in February of this year, we stated that our core four had approximately 25 million of stabilized NOI upside above our 2025 outlook. At quarter end, we have locked in over 50% of this upside with signed leases and have strong prospects to lock in another 25%. In addition to the strong volumes, pricing power is starting to improve. as office users encounter a dwindling supply of high quality space owned by well capitalized landlords. This is demonstrated by growth in net effective rents, which hit a high watermark for us this quarter. We have long viewed net effective rents as the best indicator of underlying rent economics, which have been 18% higher over the trailing four quarters compared to our 2019 average. Second, we signed 122,000 square feet of leases across our development pipeline, driving the lease percentage to 72%, up from 64% last quarter. This means we have now signed leases for over 70% of the 30 million stabilized annual future NOI growth potential from the four completed but not yet stabilized development properties. Plus, we have a strong pipeline of prospects to drive our lease percentage even higher over the next few quarters. We expect these properties will be a large driver of NOI growth in 2026 and 2027. Third, we were active with investment activity as we acquired the Legacy Union parking garage in Charlotte's uptown BBD for a total investment of $111.5 million and sold a non-core property in Richmond for $16 million. The Legacy Union Garage was funded on a leverage neutral basis through a combination of non-core disposition proceeds, proceeds from common equity issuances via our ATM program, and incremental borrowing. In the short time since the acquisition of the garage in August, we've signed a 16,000 square foot ground floor retail customer and secured 150 additional monthly parkers from a corporate user that is not a tenant in our legacy union portfolio. Given limited capex associated with garage ownership and a weighted average contractual term of roughly nine years for 70% of our projected revenue, we believe our investment represents an excellent risk-adjusted return. Fourth and finally, Our balance sheet is in great shape. During the quarter, we extended our only consolidated debt maturity prior to 2027, which gives us plenty of flexibility as we evaluate future investment opportunities that would significantly enhance our portfolio quality and BBD locations. Turning to the quarter, we delivered FFO of 86 cents per share. We have once again raised the midpoint of our FFO outlook. Our third consecutive quarter increasing our 2025 outlook with the FFO midpoint now eight cents higher than our initial outlook provided in February. We also raised the midpoint of our same property cash NOI outlook by 50 basis points. While our year end occupancy outlook points to meaningful upside over the final three months of the year. In addition to updating our financial and operational outlook, we also updated our outlook for investment activity, which indicates the potential for meaningful asset recycling over the next few quarters. We've highlighted the potential of up to $500 million of both acquisitions and dispositions during the next few quarters. So far this year, we've acquired two properties, both of which are high quality well-located assets with significant long-term growth potential. These assets were both acquired off-market at an estimated combined cash NOI yield around 8% after factoring in the upside from the recent leasing activity and additional monthly parkers at Legacy Union. We have a healthy pipeline of additional acquisition opportunities coupled with numerous non-core properties in various stages of marketing for sale. With these asset recycling opportunities, we could make significant progress over the next several quarters with regard to further strengthening our portfolio quality, growth rate, and cash flow, similar to other major asset rotations that we've completed during the last decade. To wrap up, we're extremely excited about the next few years for Highwoods. We expect to deliver strong embedded NOI growth from signed leases that haven't yet commenced across both our operating portfolio and development pipeline, and we have strong leasing prospects that could drive our future embedded growth even higher. As signed leases convert into occupancy, we see a clear pathway to higher earnings and cash flow and meaningful value creation across our 26.5 million square foot portfolio. Further, we see additional opportunities to sell older, non-strategic properties where risk-adjusted returns don't meet our objectives and recycle that capital into high-growth assets in the BBDs of our markets and attractive risk-adjusted returns. With our proven playbook and a strong balance sheet, we are well-positioned to execute on the opportunities ahead of us. Brian?