Good morning, and welcome to the Highwoods Properties Earnings Call. As a reminder, this conference is being recorded, Wednesday, October 27, 2021. I would now like to turn the conference over to Mark Mulhern. Please go ahead, Mr. Mulhern.

Thank you. This is Brendan Maiorana. Thank you, operator, and good morning, everyone. Joining me on the call this morning are Ted Klinck, our Chief Executive Officer; Brian Leary, our Chief Operating Officer; and Mark Mulhern, our Chief Financial Officer. As is our custom, today's prepared remarks have been posted on the web. If any of 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 EBITDAre. 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, including the ongoing adverse effect of the COVID-19 pandemic on our financial condition and operating results. 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. Good morning. We are pleased with our solid financial and operational results in the third quarter. Given the emergence of the Delta variant, utilization across our portfolio did not increase as much in the third quarter as we anticipated, leveling off around 40%. We now do not expect usage to meaningfully increase until the new year. While the progression of the pandemic and the resulting impact on office utilization remain difficult to predict, customers and prospects fortunately continue to sign leases, and our parking revenues continue to recover nicely. As I mentioned on our last call, leasing activity has been healthy, particularly for new deals. We signed 672,000 square feet of second leases, including 245,000 square feet of new deals. In total, we signed 96 leases during the quarter, including 46 new deals, consistent with our long-term average. So far this year, we have signed 140 new deals, which puts us on pace to eclipse our annual high watermark. Plus, we signed 83,000 square feet of first-gen leases in the development pipeline. In addition to healthy volume, rents on signed leases increased 19.3% on a GAAP basis and 4.3% on a cash basis. The weighted average term was also solid at 6.3 years, reflecting growing confidence in the long-term value of the office for our customers. Leasing CapEx increased, but this was offset by higher face rents and longer terms. We're often asked about the effect of the pandemic on net effective rents. We don't track apples-to-apples net effective rent spreads. However, if you look solely at the change in second-gen net effective rents on signed deals from 2019 to 2021 year-to-date, the decline is roughly at the midpoint of the 5% to 10% average decline across our markets we've mentioned previously, which in our experience is also consistent with the typical recessionary patterns. As we noted last quarter, we continue to believe net effective rents have stabilized. As you may have seen from local media reports, two customers in our top 20 announced this quarter plans to move out upon expiration and relocate to new developments. In both, we have at least three years of lease term remaining; in-place rents are substantially below market; and these buildings are among the best in their business districts. As a war for talent accelerates, we are strong believers that well-located office space and highly amenitized best business districts will become a competitive recruiting advantage for employers. This flight to higher-quality buildings in the best locations and with capitalized owners plays to our strengths. Our markets and our portfolio continue to generate activity and growth, further demonstrating resilience and quality. Turning to our results, we delivered strong FFO of $0.96 per share in the third quarter. Our same property cash NOI growth was also strong at 6.4%, including the repayment of temporary rent deferrals agreed to during the first months of the pandemic. Excluding these repayments, same-property cash NOI growth would still have been a healthy 5.2%, consistent with last quarter. In last night's release, we updated our 2021 FFO outlook to $3.73 to $3.76 per share, up $0.07 at the midpoint from our prior outlook and up $0.165 from our initial 2021 FFO outlook provided in February. We also raised our same-property cash NOI growth outlook to 6% to 7%, up more than 150 basis points at the midpoint from our prior outlook. Moving to investments, as we previously disclosed, we acquired the office portfolio from PAC in late July for a total investment of $680 million, including planned near-term building improvements. We've already signed leases ahead of schedule and healthy rents and are seeing strong interest across the portfolio in Charlotte and Raleigh, as well as to the development parcel in the Cumberland Galleria of business district in Atlanta, around the corner from where the Braves are hosting the World Series at Truist Park. As you know, we plan to bring our balance sheet back to pre-acquisition levels by accelerating the sale of $500 million to $600 million of noncore assets by mid-2022. We closed two dispositions for $120 million in the third quarter, bringing our total to $163 million since we first announced the acquisition. We are confident we'll end the year towards the high end of our outlook of $250 million to $300 million. Turning to development, we completed our $285 million build-to-suit for Asurion in Nashville, marking the largest development project in Highwoods' history. Finishing this project ahead of schedule and within budget during a pandemic highlights the capabilities of our development team and our partners, Brasfield Gorrie and Hastings Architecture. We handed over the keys to this remarkable workplace to our new customer three months early. After delivering the Asurion build-to-suit, our $109 million development pipeline includes Virginia Springs II, the Brentwood business district of Nashville, and Midtown West and the WestShore business district of Tampa. We signed 83,000 square feet of leases for these developments during the quarter, achieving a leasing rate of 59% for both buildings. We have strong prospects in the pipeline to stabilize these properties in the latter half of next year. We elevated the low end of our development announcement outlook from zero to $100 million, which reflects our increasing confidence in potential announcements before the year concludes. The high end remains at $250 million. We continue to observe considerable interest from potential build-to-suit and anchor customers. We view significant investments by companies in physical workplaces as another sign of a return to healthy fundamentals across our markets. Our strategically located land bank, which can support over $2 billion in future development, sets Highwoods apart and will facilitate long-term value creation. We are excited to have acquired an additional 77 acres of development land at Ovation in the Cool Springs District of Franklin, Tennessee, one of Nashville's business districts, for a total of $57.8 million. We aim to collaborate with the city of Franklin to transform this area into one of the premier mixed-use locations in the country and anticipate working alongside high-quality retail, multifamily, and hotel developers to unlock the significant potential of this live, work, play property while maintaining complete control of the development office sites. Before I turn the call over to Brian, I'd like to reiterate the strong financial and operating performance we have delivered so far in 2021. We delivered the $285 million Asurion project on budget and ahead of schedule. We acquired a $683 million portfolio of office properties with attractive long-term returns. Since announcing the acquisition, we have sold $163 million of noncore properties at attractive valuations. We raised our quarterly dividend over 4%. We increased the midpoint of our FFO outlook $0.165 per share since the beginning of the year, and we did all this while maintaining a strong and flexible balance sheet with a debt-to-EBITDA ratio of 5.6x.

Thanks, Ted, and good morning, everyone. While the economy bore the brunt of the Delta variant impact in the third quarter, we believe our positive results for the period are a product of the clear and consistent business district strategy Highwoods has been focused a long time developing. Operating in business district-located and talent-centric workplaces has proved our portfolio's resiliency in the face of unprecedented times and provides a strong foundation for future growth. Customers are returning to the office, some sooner than others, but the common course we hear is that place matters. And that while many see a more flexible workplace and perhaps more accurately work week ahead, most of us have told us that they are the very best when they are together versus being remote. This sentiment is inherent in the healthy quarterly leasing volume and metrics our team posted. This is also consistent with our markets being highlighted in the most recent edition of ULI and PwC's emerging trends in real estate and where we have significant best-in-class workplace options across 11.8 million square feet in the business districts of Nashville and Raleigh, which ranked number one and number two, respectively, and were 44% of our third quarter NOI was generated. The great migration continues to accelerate as talented companies and individuals migrate to the Sunbelt, where cities and states are open for business, housing is affordable, and commute times and modes are more manageable. Occupancy increased to 90.4%, up 90 basis points from last quarter, and we expect it to remain steady for the rest of the year. Tour and request for proposal activity is returning to pre-pandemic levels as many organizations that postponed decision-making since the spring of 2020 are now ready to discuss their long-term office plans. We have welcomed 140 new customers this year, particularly from the engineering and healthcare life sciences sectors, and we are excited about their future growth plans, especially from those new to the market. Our markets are increasingly attracting attention from individuals, organizations, and investors, evidenced by the noticeable presence of out-of-state license plates at grocery stores and a consistent trend of housing sales exceeding listing prices, often sight unseen. There are also more indicators supporting a return to normal work habits, such as JLL reporting that Atlanta, Charlotte, and Nashville have exceeded 2019 leasing levels, with Atlanta posting a positive net absorption of 478,000 square feet for the quarter. In Raleigh, we signed 135,000 square feet of leases this quarter, and activity is off to a strong start in the fourth quarter. Overall, market vacancy has slightly decreased year-over-year, while market rents have risen by nearly 4%. We anticipate that Raleigh will remain a top contender for years to come, bolstered by several new job announcements this quarter, including three major relocations. In Nashville, we signed 76,000 square feet of second-generation leases and achieved quarter-end occupancy of 95.3%. Our development team completed the new 553,000 square foot Asurion headquarters anchoring our Gulch Central mixed-use development that stretches the better part of three city blocks and is adjacent to Nashville's Amazon HQ2. In addition, we had a strong leasing quarter in our development pipeline. We signed 83,000 square feet of first-generation leases at Virginia Springs II and Midtown West, bringing the lease rate up from 59% from 24% last quarter. We continue to see strong interest in both projects and are tracking well toward their projected stabilizations in the latter half of 2022. As Ted mentioned, we have a sizable land bank that can support over $2 billion of future development. Having completed nearly $1 billion of successful development since 2016, we're confident development will continue to drive future growth and value creation. To this end, we're extremely excited about our purchase of the remaining acreage at Ovation in Nashville's suburban Williamson County, listed by Kiplinger as the 10th most affluent in the nation. These 145 acres, already home to Mars PetCare's U.S. headquarters that we developed in 2019, represent one of the premier mixed-use opportunities in the nation and are where we can build an additional 1.2 million square feet of Class A office amid significant densities of complementary residential, retail, and hotel uses. In conclusion, we're fortunate to be weathering the storm well. With our high-quality portfolio and our unmatched, all-under-one-roof team to develop, lease, operate, and maintain it, we are supporting our customers' ability to achieve together what they cannot apart. Because of this, our customers are growing more than they're not. They're investing in new space, and they see their workplaces as competitive currency to retain and recruit the very best talent available. Our development team has delivered the very best examples of our workplace making and is busy reloading the pipeline for the next generation of commute-worthy buildings. Our exceptional people and portfolio have produced results we're proud of, this quarter and throughout the pandemic. It truly is a team effort, and each and every member of the Highwoods family plays a meaningful role in our success.

Thanks, Brian. In the third quarter, we delivered net income of $72.1 million or $0.69 per share and FFO of $102.8 million or $0.96 per share, an increase from $0.93 in the second quarter. As Ted mentioned, we closed on the acquisition from PAC in late July, delivered the $285 million Asurion development in September, and sold $120 million of noncore assets at the end of the quarter. While there were a lot of moving parts from investment activity in the quarter, there weren't a lot of unusual operational items that impacted our financial results. Turning to the balance sheet. Our leverage obviously ticked up temporarily due to this quarter's acquisition. However, we are very pleased that our debt-to-EBITDA ratio was 5.6x in the third quarter, less than 0.5 turn increase at 0.2x in the prior quarter. We are making solid progress on our noncore disposition plan, having sold $163 million of the planned $500 million to $600 million and are on track to return our balance sheet to pre-acquisition metrics by mid-2022. Further, we have ample liquidity with $615 million currently available on our revolving credit facility, limited debt maturities until late 2022, and expected disposition proceeds over the next several quarters. During the quarter, we issued a modest amount of shares on the ATM at an average price of $45.81 per share for net proceeds of $6.8 million, consistent with the ATM activity in the second quarter. ATM issuances remain one of the many arrows in our quiver, and we continue to believe they are an efficient and measured way to fund incremental investments, particularly our development pipeline on a leverage-neutral basis. As Ted mentioned, we increased the low end of our development announcement outlook to $100 million, signifying our growing confidence in future development starts. The modest ATM issuance so far in 2021 gives us a head start on funding these future investments. Regarding our expectations for the rest of the year, we've updated our 2021 FFO outlook to $3.73 to $3.76 per share, with the midpoint up $0.07 since July and up $0.165 from our original 2021 outlook provided in February. Rolling forward from our prior outlook in July, the rationale for the increase was $0.01 higher per share impact from the combination of the acquisition and corresponding noncore dispositions, $0.01 to $0.02 higher per share impact due to earlier-than-expected delivery of the Asurion build-to-suit, and $0.04 to $0.05 higher per share impact from core operations due to our robust third-quarter results and the outlook for the remainder of the year. Compared to our original FFO outlook provided in February, here are the major moving parts: $0.05 to $0.07 higher per share impact from acquisition and disposition activity on a net basis, $0.03 to $0.05 from the early delivery of Asurion and faster-than-expected lease-up of the remainder of the development pipeline, approximately $0.02 from rising parking revenues, particularly transient parking, and $0.04 to $0.05 from better-than-expected core operations. In addition to our improved 2021 FFO outlook, we also increased our same-property cash NOI growth outlook to a range of 6% to 7%, up more than 150 basis points at the midpoint from our July outlook. Since the onset of the pandemic, we've regularly commented on parking revenues and operating expenses given the reduced utilization rates. We're still tracking well below normal on both OpEx and parking revenues, but recently we've seen a notable increase in transient parking revenue. The trajectory of OpEx and parking revenues continues to be challenging to forecast. But with that said, we do expect an increase in both line items in the fourth quarter compared to our quarterly averages so far in 2021. In addition to our solid FFO, our cash flows continue to strengthen. Since 2016, we've sold nearly $1.8 billion of noncore properties, we’ve acquired $1.3 billion of high-quality assets in the business districts of our Sunbelt markets, and delivered $940 million of development. We are very proud to have consistently grown our FFO per share while simultaneously making meaningful improvements to the quality of our portfolio. The strengthening of our cash flows since 2016 is evidenced by a 22% increase in average in-place cash rents, an 18% increase in our dividend, and a steadily declining payout ratio over that same timeframe. Our strengthening cash flows and continuous portfolio improvement, combined with a land bank that can support over $2 billion of future development and our proven track record as a developer, make us confident about our long-term outlook. Finally, this is my 28th and last quarterly earnings call at Highwoods. I really appreciate all your interest in Highwoods and great questions over the years. As you know, Brendan is well-qualified for the CFO role and will do a great job helping to continue Highwoods' strong track record of success.

And our first question comes from Manny Korchman with Citi.

This is Parker Crane on for Manny. My first question is just about the Ovation site. If there's been any changes since what you guys were initially entitled to several years ago, if there's been any changes since then?

Parker, it’s Brian here. Thanks for the question on Ovation. I couldn’t be more excited to now have the full site under control. Specifically, your question regarding entitlements. Let me just remind everyone what we’ve got out there right now on the 145 acres, of which about 138 are dealable due to the roads and curb that are already in place out there. So there’s been the better part of $20 million already put in the ground and part of the grading and sewer system. So we’re entitled to the 1.4 million square feet of office, of which about 200,000 square feet has already been built as part of Mars PetCare’s U.S. headquarters, which is just a fantastic customer and a truly innovative building. It’s our first full pet building, too. So if you’re ever out there, you should come see it. We have 950 residential units and approximately 400,000 square feet of retail. We would argue that probably more retail than the site needs or could support at the moment, but having that flexibility is something we’re bullish about. And then 450 hotel rooms. That’s an existing entitlement, and we think that’s kind of plenty to keep grace over at the moment. We will probably reimagine the master plan into a more integrated mixed-use development so we can really get the benefit of all those complementary uses being adjacent to each other, and we’ll be partnering with the city of Franklin to kind of go through an expedited repositioning of that. But we don’t necessarily see the need for much more density; the city of Franklin would be supportive of more office density, but we’re – that’s kind of the plan right now. What we’re going to be doing since we’ve closed on it, we've been spending the next few weeks identifying and inviting a select group of high-class developers and operators in these other uses to come in and be part of the reimagination of the master plan to work with the city of Franklin, and then ideally hit the ground running early next year. Is that helpful?

Yes, absolutely. And then just my second is just around concessions. Concessions and tenant improvements are still pretty high overall for your leasing volumes right now. I think you guys mentioned that it’s offset by some of the base rent stuff and terms. But as you guys are mentioning in your opening remarks, this growing back-to-work mentality and some of the strong leasing volumes that are in a few of your markets. When are you starting to think that you may see concessions start to tick back down towards a more normalized sort of arguably pre-COVID level?

Parker, I can start and Brian or Brendan want to jump in. Look, things are still competitive. I do think concessions have started to level off in most of our markets, but it’s still competitive. Companies were thankful that we’ve signed 245,000 square feet of new leases with new customers to Highwoods this past quarter, which is sort of on par with our first couple of quarters. But it’s still competitive out there, and we’re going to try and meet the market. But we’ve been able to hold face rates. And as you alluded to, tenant improvements have been higher; free rent has been a little bit higher. But we think net effective rents are hopefully stabilizing now.

And our next question is from Rob Stevenson with Janney.

Ted, when you talked earlier about the 40% utilization rate, when you look at your key card data, is it the same people day in and day out that constitute that 40%? Or are you having more people starting to rotate in on a regular basis?

Yes. That’s a great question. One, the only real data point we have is with Bank of America in Charlotte that is really bringing their folks back. Most of our previous key return-to-work started, most of that 40% is our smaller customers, right? Those are the ones that have come back to the office really. Our larger customers have continued to push out the return either later this year or early 2022. So, the one exception is really Bank of America; they started bringing their people back right after Labor Day. I think they brought roughly 700 people back in the first wave. We’ve got a few more increments coming back between now and the end of the year. So really don’t have any real data on the different people within each company or not, but the smaller companies are generally back.

Rob, Brian here. One thing maybe to add to that because I think you kind of sensed it and maybe some of the other things you’ve seen is that those card swipes say there’s 100 card types from our company. We are still seeing something we kind of saw last summer when companies are doing these kind of waves or this team in and this team out. So you might get 200 different people with 100 card swipes over a period of time. So I think we are seeing that they are planning to kind of ramp that back up to have both of those people and at the same time early next year.

I'm curious about how this is changing tenants' perspectives on future space utilization. There's a significant difference between having employees come in two days a week, which results in about 40% utilization, compared to having them in the office five days a week while others work remotely. This shift impacts their requirements for office space, conference rooms, and cubicles, as well as their overall space needs. Additionally, I'd like to know if buyers are pushing to complete any of your acquisitions or dispositions by the end of the year. Do you anticipate an increased pace of dispositions in November and December? Are we likely to finalize the remaining $340 million to $440 million in dispositions by mid-2022? How does the marketing strategy influence the current pace?

Sure, Rob. So as we stated in our remarks, we’ve closed thus far about $163 million of transactions. And our initial guidance was $500 million to $600 million, of which half or $250 million to $300 million, we thought would get done by year-end, and the other $250 million to $300 million by midyear 2022. So we’re over halfway there to our initial $250 million to $300 million. And we feel very confident we’re going to be at the upper end of that range of about $250 million to $300 million by the end of this year or so. So that should give you some indication. We do have several deals that are under contract with hard money that should close by year-end. And then the remaining – again, we’ve actually got a few of the second half already in the market as well. So I think you’ll see a continual cadence of dispositions into the first and second quarter next year.

And how is pricing coming in on the stuff that’s under contract today? Is it where you expected, a little bit better, a little bit softer? How would you characterize that?

Sure. The $163 million we’ve closed, it’s been roughly a GAAP cap rate of 6% and cash cap rate of the low 5s. What we have remaining to sell is call it, gap in the mid- to high 6s, cash low to mid-6s. So in total, when you put it all together, that $500 million to $600 million, we think it’s going to be a mid-6s GAAP, low 6s cap, which is better than we had indicated initially.

Okay.

Rob, I just wanted to just follow up on your timing question. So unlike our normal practice, we have layered in the expected dilution from the dispositions into the guidance for the outlook for the remainder of ’21. And really at sort of the midpoint for the sales that we expect to close in the remainder of, I think it’s fair to assume that that’s a mid-quarter, fourth-quarter close on balance on average for all of those. So it’s not all at the end of the year. It’s going to be roughly, call it, in the middle of November for an average.

Okay. That’s very helpful, Brendan. And then lastly for me, Mark, just wanted to say you’ll be missed.

Thanks, Rob. I appreciate it. Very nice of you.

And our next question is from Dave Rodgers with Baird.

I wanted to ask Brian, I’ll start with you. Two questions maybe on leasing. First is it’s obviously clear across the market across, obviously, your developments. There’s this demand for really high-quality brand-new space. So the two questions, I guess, would be can you talk about the second-generation leasing you did in the quarter? And was there anything consistent trend through any of that, certain types of building, CBD, suburban, et cetera, that you can kind of decipher for us? And then the second question is, as you talk to Pinnacle and Bass Berry, was there anything in their conversations that you could have done to keep them in that space? Or are they just kind of moving on to even better space? Just any color around that would be helpful.

Dave, great question. So let me hit the second one first. Pinnacle and Bass Berry. They’re basically still staying in the same kind of business district and in-town Nashville. They have the need to kind of update their space, and it’s hard to do when you’re in it. In some cases, they’re growing, and we couldn’t accommodate that growth. And so that’s really part of it. I think the Pinnacle one is it’s even been kind of written about in the local press. It’s even a bigger player partnership and leasing space. It’s a bigger partnership on performing events in a new venue. So we’re super excited for them, staying in the neighborhood and keeping that occupancy in the business district and being a civic citizen. So like Pinnacle is less than 100,000 square feet. So it’s not that big of a space. And the other thing is we’ve never really had the ability to mark this building to market and lease it in the middle of the booming kind of micro market of the business district right next to the Four Seasons that is selling out. So our leasing team is chomping at the bit, so they’re pretty excited about that. One global question on the second-generation leases. I have to say it’s a little bit suburban and urban in that regard, depending on the different markets. We have a lot of work underway on sort of repositioning and amenitizing our suburban assets to make sure that they have some of those same amenities, walkability access to kind of food and beverage that you might have if you walked right out of the business district location. And so as we start laying out the vision for those renderings, plans, timelines, they’re being received very warmly by the market. So I don’t know if Brendan or Ted had any more specifically, but I felt like it was kind of across the board on the second-gen renewals and leasing.

No, I think that’s right. The only thing I would add on and Pinnacle and could even throw Novelis in there is we’ve got plenty of time, right? We’ve got a minimum of three years, three and a half, almost four years on maybe Pinnacle just shy of four years. They are in great buildings and the best business districts in our best markets. And just to reiterate, they’re well below market from a rent standpoint. So we feel like we’re in pretty good shape.

One more on leasing, if I could. The activity at Midtown and Nashville, at the new developments. I mean, were those meeting prior expectations, any level of discount that we should take note of?

No, we’ve – the activity has been fantastic. And I think we get a little more TI, not too dissimilar to our second-gen leasing. We’ve been able to hold face rates, maybe a little bit more free rent, a little bit more TI. So net effect is maybe they’re down a little bit. But in terms of the lease-up timing, we’re sort of on track on both of those. So we’re very pleased with Virginia Springs II. We took it from 50% to 59% during the quarter. And then Midtown Tampa went from 11% last quarter to 59%. Our pipeline with strong prospects is very, very good. So we’re encouraged.

Great. Last one, maybe, Ted, just specifically for you. You guys obviously saw the opportunity to double down on some existing markets with the PAC transaction and exit some others. But I guess, as you continue to move through this year, is there anything additional that causing you to think about what the bottom of the portfolio is today or what the bottom markets are? Or are you still pretty confident that as leasing comes back, you’ve got the right set?

Look, I think that’s just part of our normal business, right? We’re constantly evaluating what’s core, what’s noncore, looking at our markets, looking at what customers want. We look at demand, and we’re trying to meet demand and make sure we have that portfolio that we can meet the demand with. So it’s a constant process for us. We’re all about capital recycling and upgrading the portfolio. So it’s something I think you’re going to see us continue to do over time.

Dave, Brian here. To just flip onto Ted’s statement. One of the things that we’re laser-focused on is are these assets becoming tools that our customers use to retain and recruit their talent, not just against we are competing with day in and day out for their own business, but even against the couch. So we’re laser-focused on this, and we’ll be doing that for the coming years.

Yes. And Dave, just to maybe pile on again. As Mark mentioned in the prepared remarks, we’ve sold $1.8 billion of assets since 2016, so really just over the past 5 or 6 years. And then, as Ted mentioned, on the sales to help fund the PAC acquisition, I mean those are coming in at a GAAP cap rate in the mid-6s and a cash cap rate in the low 6s. So the noncore that we have currently, I think, is a lot higher quality than what the noncore was 5 or 10 years ago. So I think we’ll continue to do that, but I think we feel very good about where the portfolio has gone to over the past several years.

Our next question is from Ronald Kamdem with Morgan Stanley.

Just a couple of quick ones for me. Just one, we’re hearing clearly a lot about sort of supply chain delays and so forth. And when you’re thinking about the $1 billion you’ve delivered successfully since 2016 and then looking forward, thinking about the $2 billion pipeline. Is there – how should we think about – what are you thinking about differently? Should we expect more delays? Should we expect – What’s going to be the difference looking forward versus looking back given what we’re hearing about supply chains?

Ron, Brian Leary. Let me take a first shot at this one. So two things about the supply chain. And there’s plenty of people talking about this, right, from Janet Yellen to construction leaders. There’s hard kind of commodity supply chain issues, and there are labor supply chain issues. I think we all feel pretty bullish that the commodity raw material supply chain issues will work their way out. I mean you just need to look at the satellite photo of the hundreds of boats off the long beach or LA ports to know that at some point, those folks are all going to be getting in, getting unloaded and stuff. On the labor side, it’s forcing the industry into more efficient delivery of construction, through preconstruction work, through precast work, through prefab work. So I actually think we’re going to get through this, and I think it’s going to add a dose of innovation to that. But we’ve got to plan that in right now, the longer time tables and potential cost for supply chain disruptions. The good thing is that most of the customers we’re talking to about new development, new construction believe that investment in rent to cover that is more than worth it when they focus on the much larger investment they make year in and year out on their talent. So it is not necessarily slowing us down in terms of starting new construction, particularly for those customers that value their workforce.

Great. My second question builds on one of the earlier inquiries. There is clearly the $500 million to $600 million in dispositions, which appears to be on track. Once those are completed, when we review the portfolio, can we say that it meets your expectations? Or is there still some lower growth segment of the portfolio that you would like to address as part of this portfolio recycling process? Are we nearing completion, or should we anticipate further actions?

Sure. We’re always recycling, as I mentioned a minute ago, where we always rank our assets one to ten. It’s just a process we go through each year. And so if you look at our capital recycling over the last 15 years, we’re always selling $50 million to $150 million a year on average. So I would expect that’s going to continue over time as we continue to upgrade the portfolio.

And Ron, this is Brendan. Just to add on to that. I mean we – as Ted mentioned, we have been active recyclers of capital. We will continue to be active recyclers of capital, but that has not detracted from our track record of earnings and cash flow growth over the past decade plus. So I think we’ve proven that we’re able to recycle capital while still growing earnings per share, dividend per share, and cash flow. So I think we feel like we have the ingredients to be able to continue that formula going forward.

And our next question is from Jamie Feldman with Bank of America.

Great. So I know you made the comment about some of your larger tenant move-outs coming. Can you just walk us through the largest expirations through the end of ’22? I know some of those might not be on the top tenant list? Or is there really not much there?

Sure, Jamie. So through 2022, our largest is a 62,000 square foot customer that expires December 2022. And we have – and they’re actually going to be a known vacate. We’ve got a 50,000-footer and then a 44. So those are our top three. And below that, we’ve got a couple of 30s, and then it falls into the 20s. So not a lot of large customer exposures through 2022.

Okay. And the 50 and the 44, are those – do you think those will renew or too early?

The 50, we’re not sure about, and the 44 is a known vacate.

Okay. And what about the potential of the backfill?

I don’t think that one’s in September ’22. I don’t think we have any prospects for that space yet.

But on the 44 though, it’s arguably one of our best buildings in that market, and with what’s going on improvement in amenities, I think we do have some folks on good about that.

Where is that one?

Hagberg.

Okay, fair. And then where is the 50, the 62?

The 62 and the 50 are both in Tampa, and we have a prospect for a lot of that space.

Okay. And then I guess just taking a step back and thinking about your markets kind of assuming we’re coming out of the pandemic here. I mean which would you say, whether it’s markets or even submarkets have the most kind of structural change from the pandemic in terms of a change in tenant sentiment around whether it’s hybrid work or wanting to be downtown versus the suburbs. I mean, is there anything that you can read from at this point?

I think it’s just too early, Jamie. I mean, we’ve got to get everybody back in the office. I just came out with a study the other day that said three out of five companies haven’t decided what their workplace is going to look like post-pandemic. I think that’s sort of what we’re seeing as well. I think the customers have got to get in, get their folks back to work before they figure out what the workplace is going to be. So I think it’s still pretty early to figure that out.

Okay. I see that you increased the development guidance, with the low end at $100 million and the high end at $250 million. Can you provide more insight into what factors contribute to that range and what could push you towards the $250 million?

Sure, we’ve still got several discussions ongoing for both build-to-suit and would be a pre-lease on a spec building. So multiple conversations don’t know exactly what’s going to hit yet. But just given where those discussions are, it just gives us confidence that we’re going to have a start or two before the end of the year.

Okay. And sorry, just to go back to like the 62,000 expiration in the 44, like what percentage of NOI would you say that is or occupancy?

Revenue-wise they’re all no higher from $1 million to $1.5 million.

That’s on an annual basis.

That’s on an annual basis, and that’s on a base of, call it, $730 million of annual revenue. So it’s a pretty small percentage of annual revenue.

And those are all the questions we have at this time. I'll turn the call back over to Mr. Klinck for any closing remarks.

Thank you. And before we conclude the call, I just want to thank Mark again for his significant contributions to Highwoods. First as a member of our Board of Directors and then as our CFO since 2014. On behalf of the entire Highwoods family, we wish Mark well as he transitions into a well-deserved retirement, and we look forward to seeing him around town. Thanks, everybody, for joining the call, and thank you for your interest in Highwoods. We look forward to seeing many of you at NAREIT in a couple of weeks.

And ladies and gentlemen, that does conclude our call for today. We thank you all for your participation, and have a great rest of your day. You may disconnect your line.