Good morning, everyone, and thank you for joining today's Highwoods Properties Q3 2025 Earnings Call. My name is Regan, and I'll be your moderator today. I will now pass the conference over to our host, Brendan Maiorana, Executive Vice President, Chief Financial Officer. 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'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. 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 NAREIT’s Annual Conference in December in Dallas. We are hosting a property tour in the afternoon of Monday, December 8, 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 4 completed, but not yet stabilized assets; continuing our proven playbook of recycling out of noncore assets that are more CapEx-intensive into higher quality, higher growth and better located properties that 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 4 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, including 326,000 square feet of new leases. Our leasing volumes have been strong now for 8 consecutive quarters. These strong volumes have driven our leased 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 4 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 4 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 4 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 noncore property in Richmond for $16 million. The Legacy Union Garage was funded on a leverage-neutral basis through a combination of noncore 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 9 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 $0.86 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 $0.08 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 3 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 2 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 noncore 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 nonstrategic properties where risk-adjusted returns don't meet our objectives and recycle that capital into high-growth assets in the BBDs of our markets at 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.

Thanks, Ted, and good morning, everyone. Thank you for joining us. Our commute-worthy strategy centered on creating exceptional environments and experiences continues to differentiate Highwoods in a market constrained by a limited supply and a dearth of well-capitalized owners. This quarter, our team once again delivered strong results. We signed more than 100 leases while maintaining a robust leasing pipeline spanning early, mid- and late-stage prospects across our entire platform, most particularly in our Dallas, Tampa and Raleigh developments and our Highwood-tizing redevelopments in Nashville. The quarter's achievements were notable. Net effective and GAAP rents reached new highs, while our 15.9% payback improved by 240 basis points relative to our 5-quarter average. Average net effective rents hit a new quarterly high, led by strength in Dallas, Charlotte, Atlanta and Tampa. Our trailing 12-month average is now 18% above our pre-pandemic peak reached in 2019. GAAP rents were strong with an 18% increase compared to expiring rents at a record $40-plus per square foot. We ended the quarter 85.3% occupied and 88.7% leased, consistent with what we've long communicated as our occupancy trough. With a limited near-term expiration outlook and more than 325,000 square feet of new leases signed during the quarter, we're well positioned to grow occupancy from here. This quarter, once again, expansions outpaced contractions 4: 1 this time. Year-to-date, we've signed 47 total expansions, outpacing our full year results each of the past 2 years and net expansions so far this year approximate 70,000 square feet, our highest year since before the pandemic. We also signed 122,000 square feet of first-generation leases in our development pipeline, lifting our lease percentage to 72%, up 800 basis points sequentially. While leasing momentum was balanced across our markets, Dallas, Nashville, Charlotte and Tampa were standout performers. Let's start with Dallas, a market that continues to shine across our portfolio. Dallas is, in many ways, an overnight success that's been decades in the making. Once defined by energy, it's now one of the most diverse and dynamic economies in the country. The Dallas metro population is projected to grow nearly 50% over the next 25 years, and about 400 new residents are moving in every single day. For 20 consecutive years, Chief Executive Magazine has named Texas the best state for business. The Dallas Regional Chamber recently noted 10 major corporate and significant office using prospects are considering headquarter moves or large expansions. That strength is showing up in the data. CBRE and Cushman & Wakefield both reported positive net absorption for the fourth straight quarter and both highlighted Uptown as the top submarket with regard to rate and demand. Our partnership with Granite Properties continues to perform exceptionally well. In Uptown, McKinney & Olive remains 99% occupied and our new 23Springs Tower, which opened this quarter has already reached 67% leased, up 500 basis points quarter-over-quarter with rents well above underwriting. Similar success is occurring at the Tollway at Granite Park 6, where our lease percentage has increased 1,000 basis points to 69%. We have strong prospects for both of these buildings that will bring the lease rate to the mid-70s or higher. Moving to Nashville, it remains one of the most compelling and resilient markets in the Sunbelt. Unemployment sits at just 2.9%, the lowest among our markets and it's the epitome of an emerging landlord favorable market with the intersection of dwindling supply, increased inbound inquiries and a surging local economy. The construction pipeline has reached historical lows and nearly 12% of the downtown inventory, about 1.4 million square feet is being converted to hotel and residential uses. CBRE sums it up well. Landlords in Nashville now have considerable pricing power with asking rates up more than 11% year-over-year. Our own portfolio mirrors that strength. Downtown at Symphony Place is now 70% leased or out for leased with another 20% in active negotiation. In Franklin, Park Place West is over 80% leased or out for lease. And Westwood South and Brentwood is progressing with solid mid-stage prospects for the entirety of the building. With over 100,000 square feet signed this quarter, our 5 million square foot Nashville portfolio continues to benefit from broad-based demand across all 4 of Nashville's core BBDs. In Charlotte, the same FIRE and TAMI industries fueling growth in Dallas and other major markets are driving strong demand for the best Class A space available. According to CBRE, leasing is up 77% year-over-year with 80% of that activity from new or expanding tenants, and there are 17 active prospects larger than 50,000 square feet in the market. Our 96% occupied portfolio and strong inbound activity validates these trends. With very little new supply, top-end rents continue to rise and the calculus for new development is becoming more viable. During the quarter, we signed 200,000 square feet in Charlotte with net effective rents over $30 a square foot, GAAP rents approaching $50 a square foot and a low 10% payback. Office using employment in Charlotte grew 3.4% year-over-year, reinforcing our confidence in the city's ongoing strength. And finally, Tampa, where momentum continues to accelerate. CBRE reports 6 consecutive quarters of declining vacancy and the strongest absorption in years. With 1 million square feet of known move-ins ahead, the trend remains firmly positive. We signed 190,000 square feet of second-generation leases in Tampa this quarter, plus our Midtown East development doubled its lease percentage after signing 53,000 square feet of first-gen leases across 2 full floors with triple net rents in the mid-40s. With only a corner restaurant space and one last floor of office remaining, we couldn't be happier with where we are in Midtown Tampa. Across our diversified Sunbelt portfolio, we benefit from a broad tenant base, spanning industries, company sizes and geographies, anchoring in both urban and suburban BBDs. When you combine that diversification with our measured development activity, our continuous reinvestment in existing assets and our targeted acquisitions, the result is a portfolio built for resilience and sustained long-term growth. We're incredibly proud of how our team continues to execute market by market and building by building, delivering outcomes that reinforce the strength and momentum of the Highwoods value proposition.

Thanks, Brian. In the third quarter, we delivered net income of $12.9 million or $0.12 per share and FFO of $94.8 million or $0.86 per share. The quarter was relatively clean without any notable unusual items. Our leasing metrics during the quarter were healthy with net effective rents the highest in our history. The strength in leasing economics, combined with the embedded NOI growth in our operating portfolio and development pipeline bodes well for our long-term cash flow outlook. Cash flows during the quarter were impacted by the high expenditures of leasing capital ahead of our projected occupancy build. As leasing volumes normalize and NOI grows, we expect cash flow levels will improve significantly. Our balance sheet remains in excellent shape. Our debt-to-EBITDAre was 6.4x at quarter end. Similar to our cash flow outlook, we expect our debt-to-EBITDAre ratio will improve meaningfully as customers who signed but not yet commenced leases in our operating portfolio and development pipeline move into occupancy, which should result in higher NOI and higher EBITDA. All else being equal, these move-ins would reduce our debt-to-EBITDAre by 0.5x. We currently have $625 million of available liquidity with only $96 million left to complete our development pipeline. During the quarter, we extended the maturity on our $200 million variable rate term loan from 2026 to 2031, leaving us no consolidated debt maturities until 2027. While we have no immediate refinancing requirements, we are closely monitoring the capital markets and may seek to raise capital opportunistically to derisk future needs. As Ted mentioned, we acquired the Legacy Union Garage during the third quarter for a total investment of $111.5 million, including near-term planned building improvements. We funded this acquisition on a leverage-neutral basis, mostly through $59 million of equity issuances via our ATM program since the beginning of the third quarter, plus some incremental borrowing and modest proceeds from noncore asset sales. As a reminder, during the first quarter, we acquired the Advance Auto Parts Tower for $138 million, also on a leverage-neutral basis, but match funded that transaction entirely with proceeds from a noncore portfolio sale in Tampa. Both of these transactions demonstrate our proven track record of creatively funding acquisitions on a leverage-neutral basis. This is what we mean by frequently saying we have multiple arrows in our quiver. Acquiring Advance Auto Parts Tower and the Legacy Union Parking Garage this year significantly improved our portfolio quality in BBD locations, were immediately accretive to cash flow and roughly neutral to near-term FFO while providing long-term upside to these financial metrics. As Ted mentioned, we updated our 2025 FFO outlook to $3.41 to $3.45 per share, which equates to a $0.02 increase at the midpoint. We added a year-end occupancy range to our outlook, which implies 70 basis points of occupancy growth at the midpoint during the final 3 months of the year and underpins our confidence in growing occupancy as we move into 2026. Finally, as you know, we plan to provide our 2026 outlook in February when we release our fourth quarter results. In the interim, there are 2 items I would like to highlight. First, we will begin expensing interest on our investments in the 23Springs and Midtown East development projects by the end of Q1 '26. Second, as Ted mentioned, we have secured nearly 2/3 of the $55 million to $60 million of stabilized NOI growth potential across the Core 4 operating properties and are completed, but not yet stabilized developments through signed leases. All of these signed leases are projected to commence by the end of 3Q '26, which should create a positive NOI and earnings trajectory as we migrate throughout next year.

We are now ready for questions.

I guess just in kind of the outlook items, you noted the potential for increased acquisitions or dispositions, would those kind of take you into any new markets? Or where would you like to kind of increase your concentration into? Or would those reduce your exposure to any of your markets that you're currently in?

Thank you for your question, Seth. Currently, we are exploring acquisition opportunities that will enhance our existing positions in current markets rather than entering new ones. As capital markets open, we're noticing a wider range of opportunities in terms of risk and return. The bid-ask spread is narrowing as sellers bring quality assets to the market. We are evaluating multiple opportunities within our established markets. On the disposition side, we have already closed $168 million year-to-date, which includes a $7 million asset that was finalized after the quarter ended. Several more assets are on the market, and we anticipate closing a couple next week, with potentially more finalized by year-end and some extending into early next year. Our assets are available in nearly all markets, excluding Charlotte and Dallas, as we focus on shedding non-core assets from our portfolio. We've consistently sold assets over the years, and this is simply a continuation of our long-standing portfolio rotation strategy.

Seth, it's Brendan. I think our primary strategy would be to recycle capital by using proceeds from asset sales to fund acquisitions or new investments. We've actually done both this year. For instance, we financed the Advance Auto Parts Tower by reallocating funds from asset sales. Additionally, we funded the garage in Charlotte on a leverage-neutral basis, mainly through ATM issuance. While both options are available, our preferred approach would be to utilize proceeds from asset sales. Given the current share price, using equity isn't very competitive, so proceeds from asset sales seem the most likely route.

It seems as though during the pandemic, we saw Atlanta benefit a lot from tenant migration from other markets. But in your prepared remarks, it struck me like maybe Dallas was leading in that trend at this point. So I was hoping you could just give us an update on which markets are benefiting most from migration from other markets and whether the level of that activity has changed significantly in any of your specific markets?

Sure, Blaine. Thanks for the question. You're correct that according to Brian's comments, Dallas is experiencing a significant influx of new residents, which Brian mentioned in relation to the ten major office needs currently being addressed by the Dallas Chamber. This number may have dropped to nine following Scotiabank's recent decision to establish a substantial presence in Dallas, shifting that requirement from Charlotte. So, Dallas is extremely active right now with many new office needs. Charlotte is also busy, with Brian mentioning 17 office requirements over 50,000 square feet. Just yesterday, an article highlighted Pacific Mutual's plan to create over 300 high-paying jobs, averaging around $179,000 per position. Thus, Charlotte is very engaged. Following that is Nashville, where we held our Board meeting last week. During our Board dinner, we invited both the economic development representative from the Chamber of Commerce and the state-wide economic development official, who indicated that their activity levels are the highest they've been in a long time. I feel optimistic about Nashville from an office perspective. Raleigh is also bustling, with the North Carolina economic development team frequently visiting our headquarters here. Office requirements in Raleigh are increasing as well. There have been some positive developments in Atlanta, and we recently received an out-of-state request for one of our buildings in Tampa. Overall, we are witnessing this trend throughout our areas, and the influx appears to be speeding up.

Blaine, Brian here. One thing I might add is where they're coming from, still the usual suspects, California, Midwest, and Northeast, but we're also seeing some international inbounds putting a toehold here in the states in these markets and growing.

Great. Second question, Brendan, you guys are clearly going through a period of elevated leasing activity. And with that comes elevated CapEx, which you touched on in your remarks. I guess how long should we kind of expect these elevated capital expenditures to impact AFFO or FAD or cash flow? And related to that, anything you can say just to touch on your or the Board's comfort with the dividend level here would be helpful.

Yes, good question, Blaine. The duration of the occupancy build is key to understanding the capital expenditures. We anticipate that elevated levels of CapEx will continue through next year as we manage signed leases that haven't started yet. We've already spent some of this capital, and we plan to continue doing so as we progress towards 2026. We're optimistic about our full leasing pipeline and expect to replenish the future customers segment, which will also require significant CapEx. Consequently, we believe that the occupancy build will persist through 2027, likely resulting in increased leasing capital in both next year and in 2027. Year-to-date, our leasing capital is tracking around $40 million above what we consider a normalized year. While cash flow is low, it remains reasonable, and we are seeing substantial NOI growth. Even with high leasing capital, the growth in NOI will significantly improve cash flow levels next year and into early 2027. As leasing costs begin to normalize, the improvement will be even more pronounced. We see a clear pathway to strong cash flow growth over the upcoming years, though there are steps we need to take to get there. We hope leasing remains robust, and leasing CapEx will likely stay elevated for the next few years.

Brendan, what drives the $0.04 gap in the fourth quarter earnings guidance? What swings to the high and low ends variable-wise?

Yes, Rob, I would say there is some discretion around expenses, which can vary from quarter to quarter as reimbursements are recognized consistently throughout the year. The largest factor influencing normalization in that range is likely some discretionary expense spending, which can impact the figures by a few cents. We typically account for some variability, including potential bad debts, which can range from the high end of the spectrum to zero, affecting the overall numbers. We also consider any unusual occurrences that might arise. However, from a leasing standpoint, there isn't much speculative leasing expected to significantly alter revenue based on our forecast.

Okay. And then the commentary that you made looking out to next year with the Core 4 leasing, does the occupancy there hit relatively ratably? Or are there certain quarters where there are a couple of big leases that hit that will really spike occupancy as we start thinking about the volatility of the occupancy number going forward?

Yes. I would say that it's fairly consistent from Q2 through Q4. In Q1, we usually see a slight decrease in occupancy due to normal seasonal factors. Additionally, some of our largest lease expirations occur early in the year. Most of those are filled again, but there will be downtime. For example, we have a significant lease in Dallas transitioning from M&O, which will result in some downtime. It is largely backfilled, with those large leases starting in the second quarter and a bit in the third quarter. Therefore, I expect to see a slight dip in occupancy in Q1 compared to where it was at the end of 2026, but it's not going to be a significant drop. After that, from Q2 to the end of the year, we anticipate a substantial increase.

Okay. That's very helpful. And then lastly, Ted, given the positive market comments around the portfolio that both you and Brian made earlier, can you talk about the Pittsburgh market and how close you may be getting there to the right time to exit some or all of those assets?

Sure. Every quarter, the capital markets have been getting better for the last 2 or 3 quarters. So we have regular dialogue with our adviser on those assets. And certainly, we're going to bring those to market when the time is right. Rob, I don't think we're quite there yet. But certainly, I think over the next couple of quarters, we may come to a decision point. Leasing velocity is really good and combine that with capital markets improving, I think we're getting closer.

Just 2 quick ones. Clearly, the capital recycling is pretty imminent, says in the next sort of 6 months. Just curious in terms of just markets, are these all sort of existing markets? Any new markets in there? And just remind us what markets you like to lean into, whether it's Dallas, Atlanta, just what stands out?

Sure, Ron. You might have missed the early part of the call where we discussed the same question. Currently, we're pleased with our footprint and are focusing on assets within our existing footprint that would enhance the portfolio. I don’t believe there are any core markets we would avoid if the right opportunity arises. Therefore, we are examining options across our entire current platform.

Ron, thanks for tossing one over the plate. This is Brian on Ovation. So we now have control over the entire site. So for a number of years, we were counting on others to deliver the placemaking part of that, the core of the community. So we stepped up over the last few years to kind of take our fate into our hands, and we went through an exercise with the city of Franklin to get it completely kind of re-entitled in a more integrated mixed-use way that actually got us some additional residential density to go into this vibrant mixed-use place. We have the right retail and multiple-use partners kind of being lined up. We've been in front of the prospects who would come in and open shops and restaurants, and it's been really warmly received. Nashville has very much shown up on every market for a retailer, fashion label. And so we feel like we're timing it right. Things are lining up well. So timing, to your question, ideally, we have some utility and site work to do next year and could be coming out of the ground vertically with the first phase, which would include office, retail, multifamily and a potential hotel in '27, opening in the fall of '28. We also love to see the rent growth in the market for mixed-use office generating about a 20% premium. So that will be kind of core to the underwriting. But thanks for asking about Ovation and more to come.

There are currently no questions at this time. Our operator instructions.

Well, thank you, everybody, for joining the call today, and thank you for your interest in Highwoods. And if you have any follow-up questions, please feel free to reach out to any of us. Thank you.

Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your lines.