Good morning. Thank you for joining the Highwoods Properties Q2 2025 Earnings Call. My name is Matt, and I will be the moderator for today's call. I would now like to pass the conference over to our host, Brendan Maiorana. Brendan, please proceed.

Thank you, operator, and good morning, everyone. Joining me on the call this morning are Ted Klinck, 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 are 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. 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, everyone. We had another strong quarter with robust second-generation 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 CapEx 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 CapEx intensive into better located, higher growth assets that are more capital efficient. We continued our healthy leasing volume in the quarter with 923,000 square feet of second-gen leasing, including 371,000 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 leasing performance this quarter, we now have 50% of this upside scotched with signed 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 will increase our leased rate by the end of the year. We have over $10 million of NOI growth potential at GlenLake III in Raleigh and Granite Park Six in Dallas, two development properties that delivered in 2023 but 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, 23Springs 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 dwindling availability over the next few years creates an opportunity for meaningful rent growth at high-quality second-gen product. We are 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 Sunbelt. 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 Highwoods 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 $0.89 per share in the quarter. Our occupancy was roughly flat from Q1 at 85.6% while our leased 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 will see the leased rate and occupancy levels increase by the end of the year. With our strong financial performance in Q2 and upbeat outlook for the balance of the year, we have once again raised the mid-point of our 2025 FFO outlook, up $0.02, to a range of $3.37 to $3.45 per share. Since the beginning of the year, we have increased our FFO outlook by $0.06 at the midpoint, or nearly 2%. In conclusion, we are extremely excited about the next few years for Highwoods. We are operating in the strongest BBDs in the Sunbelt 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-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.

Thank you, Ted. Good morning, everyone. Kudos to our tremendous team for the results they delivered in the second quarter with 923,000 square feet of quarterly leasing, of which 371,000 square feet was new, signaling future occupancy gains as those leases commence. Our Sunbelt states are repeat best-for-business winners, our markets are outpacing the nation with higher population gains and lower unemployment rates, and our BBD portfolio is outperforming as the beneficiary of our customers’ preference for in-office occupancy and, in turn, their continued flight to quality, capital, and owners. With corporate and now federal conviction behind the in-office value proposition, we believe equilibrium has been reached as it relates to remote work and no longer see it as an acute headwind to our portfolio. With greater numbers returning to the office, there's not only less commute-worthy options available at the top of the market, the bottom is shrinking as well with CBRE reporting that over 23 million square feet of U.S. office space is on track for demolition or conversion to other uses this year, far outpacing the almost 13 million square feet of new office space being completed in 2025, which figure in itself is far below the 10-year annual average of 44 million square feet of annual deliveries. Coupled with a record low construction pipeline and with the development period of an office building being measured in years, this slow squeeze play has started to move the market in an owner's favor in certain instances such as new trophy development and in high-barrier-to-entry BBDs with the potential for a meaningful and extended shortage of Class A space in the not-too-distant future. Our Sunbelt BBD strategy, which is both urban and suburban in nature, is serving us well. All of our markets are in states that are repeatedly rated by CNBC as the best for business with North Carolina, Texas, Florida, and Virginia taking the top four spots this year. With regard to the Tar Heel State, between Charlotte and Raleigh, North Carolina is home to 33% of our revenue and 36% of our NOI. Georgia and Tennessee aren't far behind rounding out the top eight of CNBC's rankings. Bloomberg Economics brings this to bear highlighting that the Southeast accounted for more than two-thirds of all job growth across the U.S. since early 2020. These three forces—improving in-office utilization, declining competitive supply, and strong demographics—are all combined with a resilient economy, are bearing fruit in our leasing activity and make us optimistic our strong performance will continue. To that end, we signed 102 leases in the second quarter with expansions outpacing contractions almost 3:1. Net effective rents averaging $19.30 per square foot with an average payback of 17.2%. Of the 102 leases we signed, 42 were new, with almost 20% of those new to market. Cash and GAAP rent growth were strong at 3.6% and 17.6%, respectively. Above all, we are most enthusiastic about the progress we've made, and continue to make, on our occupancy upside across four core assets in Atlanta and Nashville. Three of these four have completed or are in the midst of completing our Highwoodtizing redevelopment program, essentially positioning them to directly compete with new construction. The fourth, Westwood South, is in the highest of barrier-to-entry BBDs of Brentwood in suburban Nashville, and it has a leasing prospect pipeline that would fill the building twice over. Symphony Place in Downtown Nashville started the quarter strong. The seven-floor lease with Nashville-Mainstay and global law firm Holland & Knight was proof-positive that the environment and experience we are curating there is what Nashville's best-and-brightest are looking for, and there are leasing prospects for over 80% of the building. While you never bat 1000%, with these prospects and inbound activity picking up in Nashville, Symphony Place is poised to deliver meaningful organic growth. The backfill update from Nashville is a good segue into Music City's broader market performance with the nation's lowest large-metro unemployment rate. Cushman & Wakefield reported Nashville having the nation’s third highest positive net absorption, and the market's robust demand generated almost 1 million square feet of leasing for the quarter, the highest for Nashville since the second quarter of 2021. JLL added that there are almost 2 million square feet of active requirements in the market and with a decade-low construction pipeline delivering at 79% preleased, and with no new starts in the foreseeable future, vacancy should decline, rents should increase and momentum should continue. The second quarter leasing we did in Nashville led our markets for both total and new volume, had our highest dollar-weighted average lease term at nine years and was tops with GAAP rent growth of 23.8% and cash rent spreads of 12.4%. Southeast of Nashville, Charlotte continues to be a talent magnet with new data showing that the area's daily net migration count is up from 117 a day to 157 according to the Charlotte Regional Business Alliance, and where Cushman highlighted the region as one of the nation’s top quarterly job generators with a 2.2% growth rate. Cushman also noted Charlotte's fourth consecutive quarter with leasing activity over 500,000 square feet where over 80% occurred in the submarkets of Uptown, Midtown, and South Park. Our 2 million square foot Charlotte portfolio, which is entirely located in the Uptown and South Park BBDs, leads the way at 96.6% occupied. Our 1.2 million square foot Legacy Union Uptown portfolio sits squarely at the geographic center of Charlotte's Class AA demand and is 95% occupied, while our six-building, 800,000 square foot portfolio in South Park is 98% occupied. With Charlotte's construction pipeline empty and with multiple large inbounds cited by the Charlotte Alliance, not including Citigroup or AssetMark's recent significant job announcements, market vacancy and rental rates should continue to move in opposite directions. Of all of our markets, Dallas continues to be an economic juggernaut with continued job and population growth and positive net absorption. JLL noted that 60% of Dallas' office pipeline is build-to-suit construction for Goldman Sachs and Wells Fargo and that there are an additional 7.6 million square feet of requirements in the market. Our Dallas development pipeline is benefiting from this demand with prospect activity at both our 422,000 square foot Plano BBD Granite Park Six development, which is currently 59% preleased, and our 642,000 square foot 23Springs development in Dallas' Uptown BBD, which itself is 63% preleased. Also in Uptown and down the street from 23Springs is our 557,000 square foot in-service asset, McKinney & Olive, which is over 99% leased. I would be remiss if I didn't share highlights from Tampa, both as a market and from our portfolio’s perspective. CBRE led this quarter's Tampa market report with a headline that reads a positive path ahead as the office market builds on Q1 surge. The report noted that Tampa posted its fifth consecutive quarter of positive net absorption, and the pipeline for continued positive absorption is healthy with 1.3 million square feet of future tenant move-ins tied to already-executed leases. With an additional 1.4 million square feet of active prospects and one of the lowest market-wide vacancies in the nation per CBRE, we are very pleased with our market activity where we ended the quarter at 86.1% occupied but more than 92% leased. Our Midtown East development recently delivered 40% preleased and has strong prospects for another 40% of the building. Underwritten to stabilize in the second quarter of 2026, Midtown East was the only building under construction for the better part of two years and is the tallest building in the Westshore BBD and in the heart of Midtown Tampa's thriving mixed-use district anchored by Whole Foods, two hotels, and luxury apartments. With a commute-worthy portfolio and a trophy-asset team, Highwoods is creating compelling environments and experiences that are giving our customers a competitive advantage in recruiting and retaining the very best. This advantage is recognized in our activity and economics, and we are steadfast in our conviction that great value is created when the best and brightest are better together.

Thanks, Brian. In the second quarter, we delivered net income of $18.3 million or $0.17 per share, and FFO of $97.7 million or $0.89 per share. The quarter included three atypical items. First, we received $3 million from the Florida Department of Transportation for the impact of roadway improvements adjacent to a non-core property in Tampa. This payment, which is reflected in other income, was expected and has been included in our FFO outlook since the beginning of the year. Second, we received $1 million of term fees; the largest was attributable to a customer where we proactively took back space early and have subsequently re-let this space to a new user with a long-term lease. This term fee temporarily boosted Q2 earnings but will be offset by downtime at the property. Third, we wrote off nearly $1 million of predevelopment costs at sites where we no longer believe office to be the highest and best use. Otherwise, this was a very straightforward quarter. We are pleased with our results, which demonstrate the resiliency of our operations and cash flows. Our balance sheet remains in excellent shape. Our debt-to-adjusted EBITDA ratio was 6.3x at quarter-end. We only have $106 million left to fund on our development pipeline and are currently maintaining over $700 million of available liquidity. Our only debt maturity over the next 18 months is a $200 million variable rate term loan that is scheduled to mature in May 2026. Discussions with our bank group have been very positive, and we remain comfortable in our ability to extend this loan. As Ted mentioned, we have updated our 2025 FFO outlook to $3.37 to $3.45 per share, which equates to a $0.02 increase at the midpoint. The underlying picture is actually stronger than the headline implies. As I mentioned earlier, the second quarter included $0.01 of higher G&A due to the expensing of pre-development costs that were not included in our prior outlook. Plus, we pushed $0.02 of interest income out of the 2025 forecast and into future years. These items have been partially offset by a $0.01 increase to prior year property tax refunds expected during 2025. Overall, this equates to $0.02 of net headwinds that were not included in our April outlook, but these have been more than offset by $0.04 of higher anticipated NOI, resulting in the increase of $0.02 per share at the midpoint. Turning to leasing and our occupancy outlook, we expect to be towards the low end of our year-end 2025 occupancy outlook of 86% to 87%, largely driven by proactively taking space back early from users where we have subsequently re-let these spaces to new users with leases that don't commence until after year-end. This activity, while reducing near-term occupancy, secures additional long-term tenancy across our portfolio and reduces our rollover risk in future years. We also proactively took back 35,000 square feet early from a user to secure a long-term lease extension on their remaining 70,000 square feet on an as-is basis. Finally, we have one user that we originally expected would be able to take occupancy of their 50,000 square feet in the fourth quarter, but we now expect this lease to commence in the first quarter of 2026. These timing issues have moved 130,000 square feet of previously projected occupancy at year-end 2025 into the future. Lastly, I want to review in more detail the performance of the core four operating properties with meaningful occupancy upside that Ted highlighted, as well as our development properties. At the beginning of the year, we called attention to $25 million of embedded annual NOI growth potential upon stabilization of the core four. At that point, we had locked in $5 million of this future upside with signed leases. Today, this number is now up to over $12 million, and we have strong prospects for another $5 to $6 million. Our two 2023 development deliveries, Granite Park Six and GlenLake III have over $10 million of annual NOI growth potential upon stabilization, over $6 million of which has been secured with signed leases, up from $4 million at the beginning of the year. The two developments that delivered earlier this year, 23Springs and Midtown East, have over $20 million of annual NOI growth potential upon stabilization. We have secured $14 million of this upside with leases that will commence in the future, up from $11 million at the beginning of the year, plus we have strong prospects for another $3 million. In total, these eight properties have over $55 million of annual NOI growth potential above our 2025 outlook. We have locked in over 60% or more than $33 million of this upside with leases that have been signed but are not contributing to 2025, plus we have strong prospects for another $9 million. To be clear, it will take time for these signed leases to come online. We are also still capitalizing interest and operating expenses at 23Springs and Midtown East as these two development projects delivered earlier this year, so not all of the NOI from those two assets will be realized in future FFO or operating cash flow. However, the leasing activity is encouraging, and we expect all of the leases signed to date to commence by late 2026, which gives us confidence about the trajectory of earnings and cash flow as we move into 2026 and even into 2027. To wrap up, we are ahead of our expectations in terms of executing on our embedded growth drivers, with the potential to secure even more of this upside over the next few quarters. We are also encouraged at the potential to recycle additional capital and thereby further improve our long-term growth profile. Given our strong markets, BBD locations, proven operating and asset recycling strategies and well-positioned balance sheet, we are encouraged about the next few years for Highwoods. Operator, we are now ready for questions.

First question is from the line of Peter Abramowitz with Jefferies.

Just wanted to kind of dig into the guidance a little bit. So you had kind of significant beat in second quarter here and you had a kind of big other income items. Just wondering kind of what else went into the guidance that it didn't necessarily flow through to a slightly larger raise? Is there a degree of kind of conservatism still in there and kind of your expectations for the back half?

Peter, it's Brendan. I'll try to take that. So I would say that I think, as I kind of mentioned in the script, we had some other items that went against us, right? So there was $0.03 of kind of headwind, I would say, in the updated outlook that is not through the property level, not at the NOI level. So G&A is higher. We did incur that in the quarter. So that's part of the Q2 beat, I guess, relative to at least certainly Street expectations. But then there were some other income or interest income that we had forecast for late in the year that we now have pushed out of that. So that $0.03 of headwind has been more than offset by call it, $0.05 of NOI upside, if you include a little bit more in terms of prior year property tax refunds. So I think you're getting $0.04 of higher kind of NOI in those numbers. That's split between development NOI and the same property pool. So I think that's all pretty good. I would say I would maybe caution you and others to extrapolate a quarter or two to a full year outlook. I think what I would encourage everyone to do is kind of think about the totality of the year and then think about kind of all of the building blocks of NOI growth that we laid out as you think about future periods going forward. There's always some seasonality in numbers, there's moving of expenses that can move from one quarter to another. So I think if you extrapolate one quarter to another, it can kind of lead to a false positive or a false negative.

All right. That's helpful. And then could you talk about just kind of the opportunity set for acquisitions in your markets right now, kind of what you'd be targeting potentially from a return perspective, whether going in yields or longer-term IRRs? And does it seem like activity has kind of picked up since maybe it slowed down post the Liberation Day announcements?

Peter, it's Ted. I'll take that one. Look, I think you nailed it. Capital markets are definitely starting to open up a little bit. We're starting to see more high-quality assets come to market. I think the bid-ask spread is narrowing. Debt capital markets are opening up. So the availability of debt for office acquisitions is better today than what it was earlier in the year and certainly last year. Equity capital is coming off the sidelines. I think they're actually underwriting office again and they are being more constructive on the underwriting. So I think sellers have been waiting for this, and they're starting to bring assets to market, some of which are wish list assets. So a lot more in the market, a lot of higher-quality assets. Some of those are core, some are value-add, some are core plus. So we look at everything, and we're going to price it based on our evaluation of risk and certainly, from a return standpoint, it will be based on the risk-adjusted yield. So again, we look at everything and but we are starting to see some attractive opportunities that we've been sort of waiting for.

Next question is from the line of Seth Bergey with Citi.

Can you talk a little bit about your expectations for just concessions and TIs for some of the leasing that you've done in the quarter?

Yes, Seth, it's Ted. From a leasing perspective, we had another very strong quarter. Our tour activity remains robust, following the same trends we've observed for some time, with continued movement towards higher quality spaces, better capital, improved amenities, and prime locations. I believe we've peaked in our leasing CapEx, and our net effective rents were very strong this quarter. While there are variations by submarket, some areas are seeing a decrease in concession packages, alongside rising rates. Overall, while individual markets may fluctuate quarter-to-quarter, it’s reasonable to say that concessions have generally peaked and market rents are increasing, which should be positive for net effective rents.

Next question is from the line of Rob Stevenson with Janney.

Just to ask the last question in a different way. Given all the leasing, when you take a look at the building improvement, second-gen tenant improvements, and leasing commissions. Is there a spike that we should be expecting in a couple of the upcoming quarters given when this stuff hits? Or is that sort of low $40 million a quarter that you've been averaging for the last few years, been about where it's going to wind up being on a sort of smoothed-out basis?

Rob, it's Brendan. I'll start by addressing your question. The commission levels have been high due to the volume, and they are disbursed more quickly than the TI dollars. This has likely reflected in increased commissions, especially last year when leasing volumes were substantial, particularly for new leases, and during the first half of this year as well. Regarding TI dollars, I believe we will continue to see elevated levels. Last year was consistent with that, and I anticipate it may be slightly higher in 2025, as well as above the first half of this year. We expect this trend to continue into 2026 as we work on building occupancy in the upcoming quarters. While I don't foresee a dramatic increase compared to the last year, I do expect high levels to persist for the remainder of this year and likely into next year.

Okay. That's incredibly helpful. And then, I guess, Brendan, at this point of the year with a bunch of line items more or less locked in, what's the biggest swing factors between you guys hitting the sort of $3.37 versus the $3.45? What's the biggest unknown for you at this point to keep the guidance range that wide?

Yes, there are likely a few expense items and timing-related factors contributing to the variability within the guidance. Additionally, we have proactively taken back some space early this year for long-term benefits, which I mentioned in the prepared remarks. There are ongoing conversations that may also lead to similar actions. Furthermore, there may be some variability related to lease renewals, with some being possible and others uncertain, presenting both positive and negative aspects. Overall, I would say the variability is primarily around expense timing, but it shouldn't result in a significant change from where we currently are in the year.

Okay. And is it safe to say that given the timing that any acquisitions or dispositions at this point of any material amount would probably wind up being sort of mid- to late fourth quarter in terms of sort of being able to be closed at that point in time and sort of not really impacting numbers at this point very much, but there is still an opportunity for you guys to do stuff of materiality?

Yes. So just to be clear, any acquisitions or dispositions are not included in kind of the range; that would be outside of the range. But to the extent of where we sit in the year, the likelihood of an acquisition or a disposition having a meaningful impact on numbers is probably fairly low. I think that's fair. I don't know that I would characterize it as the most attractive/cheapest form of capital that's available, but we'd like to have diversity in the debt stack that's there. And that's a good source of capital for us given that it's variable. If we do have a lot of disposition proceeds at any point in time, that becomes freely prepayable. And we like to have a little bit of variable rate in the stack because you always just want to kind of diversify the risks in there in terms of your interest rate exposure. So I think for all those reasons, it's an efficient source of capital. I don't know if I would necessarily characterize it as the cheapest form of capital.

Maybe, Ted, we'll start off with this. Obviously, COVID and kind of the pandemic transferred a lot of these conversations on flight to quality and the type of assets. Kind of curious if you've taken a look at potential impacts of AI on demand and if that impacts longer term, the type of assets you guys want to own, whether it be individual submarkets or size of buildings and kind of how you guys are evaluating that as it's still early days, but just longer term, sort of view?

Yes, it's definitely early days. The demand side on the West Coast is seeing significant interest in AI companies, which is positive for them. As for us, I think many companies in America are exploring how AI might affect their business in the future. We've faced various challenges in the office industry over the years, such as densification, and we've managed to navigate those and continue growing as markets evolve. Regarding AI, I can't say exactly what the impact will be at this point.

Nick, it's Brendan. I'll take that. So we always struggle a little bit answering this question. I think when you look at early renewals that get done and you kind of think about a full cycle, our retention level tends to be, call it, kind of 60% to 65%. I think if you're looking at expirations that are going to occur kind of over the next 12 to 18 months, those numbers go down because you've got anti-adverse selection bias that's in kind of the rent roll because you obviously don't early renew customers that are ultimately going to move out. So I would say, if you think about the next 18 months, so from where we are now through the end of 2026, we really, as you point out, have kind of worked through those large known move-outs and I think the retention level that we have from here kind of through the end of next year is probably in that 45% to 50% range, if I kind of had to give you a number that on a range, and that's probably a little bit higher than where we've been historically and certainly much higher than where we were over a 12- or 18-month period if you look at the preceding 12 to 24 months. So I think that gives us confidence that we're well set up to build occupancy as we go forward over the next 18 months or so.

Appreciate the comments on sort of the demand backdrop and how things are improving, but are you able to talk about sort of how that demand backdrop differs across your guys' market footprint? Are there any markets in which you guys have a portfolio concentration in that are experiencing outsized demand versus others?

I'd say Charlotte, Dallas, and Nashville are our top markets, all performing well. We're fully leased in Charlotte, so we can't increase occupancy there. However, in terms of the core markets we've been discussing, three of them are located in Nashville, where we're exceeding our business expectations and experiencing strong demand. In Dallas, our development projects are thriving and we're seeing a significant influx of people moving to the area, particularly in the submarkets we're targeting. We are pleased with the demand in these three cities, but Tampa is also doing exceptionally well, as Brian mentioned in our prepared remarks. Overall, the demand is robust and especially strong in these four markets.

I want to add that in Charlotte, Citigroup and AssetMark have collectively created over 700 new jobs, which is expected for the financial services sector there. The Charlotte Regional Alliance recently pointed out that there are six potential businesses considering the area, and only one of them currently has a U.S. headquarters. This interest isn't just from domestic companies but also from international ones, with those six prospects representing around 5,000 jobs that require office space. Additionally, the daily net migration to Charlotte adds nearly 50 people a day, translating to about 14,000 new residents over the course of a year, which significantly impacts demand in the area. In Dallas, there are over 7.5 million square feet of demand in the market. While Dallas is a large market, we are seeing strong demand focused on our projects there. Nashville also shows promise with nearly 2 million square feet of active requirements, particularly from multi-market firms. The CBD submarket was the most active last quarter. Finally, Tampa has over 1 million active prospects, and we’re pleased with the high-profile interest in our developments there, with well-known companies looking at prime locations in Tampa.

I think it certainly varies by market, right? The differential, the closest market we are to new development is probably Dallas, right? I think Dallas is proving out whether it be in Uptown, in the Knox-Henderson area, Preston Center, those three submarkets in particular, in Dallas are probably at or approaching cost-justified rents. Outside of that, most of our markets are probably 20% to 40% off. And that's new development today, what rates they're getting versus what you'd need to build something more. The last few years when the starts haven't been all that high, the construction costs have continued to go up. You'd think they level off, but they have continued to go up. So the rents you need—and that's whether it be hard costs, financing costs, what have you. So the rents you need are quite a bit higher than what they are in the existing development pipeline. So again, it varies by market, but it's a pretty big delta.

I wanted to go back, I guess, Brendan, to something you mentioned about sort of '26. Given the signed but not commenced leases or the lease rate and the benefit of that going into '26. You mind just walking us, I am not looking for a number, but just like what are the other kind of moving pieces that make probably '26 visibility either much better than you've had in past years? Or is there some other swing factor? Just how much derisked is '26 growth from here on?

Yes, Vikram, that's a great question. We've built significant embedded growth through our leasing activities so far. If you compare the leased rate to the occupied rate, there's a 330 basis point gap, which is the highest I've seen in recent years and more than double the average. Typically, our lease to occupied spread ranges from 100 to 200 basis points, with 150 being the midpoint; being more than double that indicates that we can expect occupancy to increase moving forward. Many of those leases are already signed, as you mentioned. We're optimistic that the economy and the leasing market will remain stable, which is crucial for realizing our growth potential as we enter next year and beyond. We have laid the groundwork to be in a strong position for this growth. While I can't provide specific numbers for next year or beyond, we do see a solid opportunity for occupancy growth as we transition into the end of this year and throughout 2026. Previously, we've discussed potential year-end occupancy figures for 2025 through 2026, and we believe there is the potential to increase that by 100 to 200 basis points steadily throughout the year. Unlike past years, where we experienced early seasonal dips in occupancy before rebounding, we anticipate a more consistent increase in occupancy going forward. Additionally, we have some development deliveries coming up, such as GP Six and GlenLake III. Neither of these assets will capitalize any costs, so once the leases start, all income will contribute directly to our bottom line. We also have two development projects that will be additive; however, we are capitalizing operating and interest costs on these assets, so while the net operating income from them will be positive, it will be partially offset by these expenses compared to 2025. Overall, this sets us up for good growth potential in the coming quarters. Beyond this, we face some uncertainties and do not plan to initiate significant financing in the next 18 months, as our balance sheet is healthy. Future actions will depend on our strategy regarding acquisitions or dispositions.

That's helpful. And just one more. I mean I think the team talked a lot about these big RFPs, and I think you've mentioned like four or five non- or foreign firms looking for headquarter space. One, just how competitive do you think this process is? Like what sort of competition is there from landlords to kind of win these deals, and do you mind giving us a little bit more color, like what type of industries is this demand coming from, especially the foreign entities you mentioned?

Vikram, Brian here. I'll take a shot. A couple of things. They're all generally code named, and what's interesting is because of the markets we're in, we will sometimes see them pop up in multiple markets. So whether it's Charlotte and Atlanta, whether it's Nashville and Charlotte, whether it's Atlanta and Raleigh. So it's interesting there. In the Charlotte area, yes, there's a financial services bent. But at the same time, there are some kind of headquarter or U.S. headquarter locations for international firms that manufacture things that are bringing—they are manufacturing the products they build, state-side, to sell kind of a domestic product made here. So I'm not sure you can necessarily connect that to the change in international trade. This is stuff that's kind of been working for a while. One thing I will say is almost all of these, the states, those same states that I mentioned are getting ranked for the best-for-business by CNBC. They are all at the table and the states have incentive plans. They have partnerships. They're open for business. They are working with these companies and these site selectors, and so it's very much a public-private partnership in every place. And then they're looking at the BBDs that we're in because that's when they kind of bring external sensitivity in terms of talent, they are very much focused on exceptional experience. And so that's where we're seeing a lot of them. Unfortunately, in Charlotte, we don't have any room at the inn. But because of that, we're getting a good look and understanding who's coming in.

Just two quick ones. Going back to the comments on the acquisition front. Just digging a little bit there. Just any curiosity in terms of markets, in terms of situations. Are these distressed? Are these funds? And also, you may have mentioned the cap rate before, but just if you could remind us sort of cap rate and IRR ranges.

Sure, Ron. There are opportunities in various markets. Sellers have been anticipating the reopening of the office capital markets, which has led to high-quality assets emerging across our areas. For a strong, well-leased trophy core asset with a good weighted average lease term, cap rates are around 7%, though this can differ by market, lease term, credit quality, and whether rents are below or above market rates. Many factors influence these cap rates, making them slightly higher or lower. Internal rates of return are likely in the high single-digit to low double-digit range, again depending on the specific market and the characteristics of the acquisition deal. Yes, I believe we are closer today than we were three months, six months, or even two years ago. We are still waiting and experiencing considerable leasing success in Pittsburgh, so we will be patient and time our actions appropriately. It may still be a bit early. However, if you look at our disposition guidance, we have another $150 million planned for this year. We have several buildings currently on the market and others that we are preparing to launch. If my profile were different, it would resemble what we have sold over the past couple of years. Over the last several years, our offerings have included a mix of single-tenant, long-term lease buildings along with older, higher capital expenditure, lower growth assets. We are actively marketing several of these properties in various markets, including Pittsburgh, when the time is right.

I just wanted to follow up on Ron's question. Again, just as you guys kind of take a look at different markets and what's happening with demand and supply fundamentals, as we kind of look at what's happened with capital markets, just wondering if there's any scenario where we could see you enter new markets or possibly also exit additional markets apart from Pittsburgh, that's earmarked for exit.

Yes, this is Ted. I'll take that. We've entered two markets in the last six years, Charlotte in 2019 and Dallas in 2021, while also exiting three markets during that time. We're continuously exploring new markets, but currently, we're satisfied with our footprint. We have announced our exit from Pittsburgh gradually, but at this moment, we are pleased with our market selection.

Okay. That's helpful. And then also following up on Vikram's last question. Again, Brendan, I appreciate all the color in regard to how occupancy could kind of shape up over the next 18 months or so. Just kind of curious within that while there are no big kind of 100,000 square foot move-outs that are kind of known. Can you just talk a little bit about kind of like the next level below that like the 50,000 to 100,000 square foot leases and if there could be a couple of those that could kind of hinder occupancy growth?

Yes. Let me begin. If necessary, Brian or Brendan may add to this. The demand we're observing in our markets shows a trend over the last few quarters where larger users are becoming more evident. However, our primary focus remains on users in the 5,000 to 15,000 square foot range. We’ll secure some floors here and there, but our core business will continue to target that 5,000 to 15,000 square foot user segment. In most of our markets, we see that this demand is primarily coming from professional service firms, including law firms, banks, accounting firms, engineering firms, and the healthcare sector, which has been performing well and driving demand for us. Additionally, we've mentioned in previous quarters our consistent net expansion activity. Over the past four quarters, 53 companies have expanded, resulting in 21 contracts that equate to over 200,000 square feet of net absorption. Lastly, Brian mentioned earlier about the in-migration which is also a key demand driver. This quarter, eight new companies entered our markets, all adding offices rather than relocating. This accounted for another 27,000 square feet across four different markets. So, our demand appears quite diversified, encompassing both larger tenants and our core users.

Yes, Tayo. I would like to add to Ted's comments without going too deep into specifics. There will always be customers moving out and new customers moving in. Over the next 18 months, if we maintain a retention level of around 45% to 50% for the remaining leases, that translates to 3.1 million square feet between now and the end of 2026. If we continue to add 300,000 square feet each quarter, it should more than compensate for the expected move-outs, potentially exceeding by 200,000 to 300,000 square feet. Additionally, I anticipate that the gap between leased and occupied space will narrow, which would contribute to higher occupancy rates. This positions us well, but we must keep leasing space, and we are confident in our ability to do so given the available pipeline. However, there is still a considerable way to go over the next six quarters.

There are no additional questions waiting at this time. So I'll pass the call back to the management team for any closing remarks.

Just want to thank everybody for joining the call today, and thank you for your interest in Highwoods. We look forward to seeing everybody soon. Take care.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.