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. [Operator Instructions] 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 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…

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…

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…

[Operator Instructions] Our first question goes from the line of Seth Bergey of Citi.

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?

Seth, thanks for the question. Yes. So the acquisition opportunities we're looking at right now, none of them are new markets. They would all be adding to existing holdings in our existing markets. So -- and the ranges we put out there, as with the capital markets opening up, we're starting to see more opportunities really across the risk and return spectrum. So bid-ask spread seems to be narrowing. So sellers are bringing high-quality assets to the market. So yes, so we're taking a look at various opportunities across that spectrum, all in our existing markets. And then on the dispose side, I think right now, we have -- we've closed year-to-date $168 million. That includes a small $7 million asset that closed after quarter end. And we've got several other assets in the market. I think we're going to close a couple next week even that the buyer is hard on and maybe even a few extra -- a few other deals by the end of the year and then a few will leak into early next year. And I think we have assets on the market in all of our markets with the exception of Charlotte and Dallas. So it's really just trimming the noncore assets across our portfolio. And I think you know we've been a regular seller of assets over the years. So I think we're just continuing the portfolio rotation that we've been doing for many years.

Great. And then just on financing assets, any potential acquisitions, would you look to do more on the ATM? Or would you primarily fund those through other dispositions?

Seth, it's Brendan. I think plan A would be recycling capital with disposition proceeds used to fund acquisitions or new investments. But I would say there's -- we've done both so far this year. So we funded the Advance Auto Parts Tower with a rotation of capital from disposition proceeds. We funded the garage in Charlotte on a leverage-neutral basis, primarily through ATM issuance. So I think both are available, but I would say that our plan A would be use disposition proceeds. And given where the share price is now, the equity currency really isn't competitive. So I think disposition proceeds are most likely.

Our next question comes from the line of Blaine Heck of Wells Fargo.

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. No, I think you're right. Based on Brian's comments, it's really Dallas is seeing a significant amount of in-migration that Brian alluded to 10 significant office requirements that the Raleigh -- the Dallas Chamber is working on right now. That may be down to 9 now given the recent announcement of Scotiabank putting a pretty big presence in Dallas, which Dallas won that requirement from Charlotte. So Dallas is incredibly busy right now, a lot of new requirements. Charlotte, I'd say, is right behind. Brian alluded to 17 office requirements that are greater than 50,000 feet. Most recently, there's a news article yesterday about Pacific Mutual, 300-and-something jobs, high-paying jobs, I think averaged like $179,000 per job. So Charlotte has been incredibly busy. Right behind that is Nashville. We actually had our Board meeting in Nashville last week. And at the Board dinner, we brought both the economic development person for the Chamber of Commerce as well as the state-wide economic development person. They spoke to our Board and they basically said they're as busy as they've been in a long time. So from the office perspective. So I feel really good there. Raleigh is busy. The North Carolina economic development folks are actually in our headquarters building here in Raleigh. So we see them quite a bit. And the office requirements are picking up in Raleigh as well. There's been a couple of good announcements in Atlanta as well. Tampa, we just got somebody from a new out-of-state requirement in one of our buildings. So really, we're seeing it across our footprint. The in-migration is really -- it seems to be accelerating.

Blaine, Brian here. One thing I might add is where they're coming from, still 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. I think it probably depends on how long we think the occupancy build goes for. So I think it's clear that we would expect elevated levels of CapEx kind of through next year as we've got kind of the signed, but not yet commenced leases as you spend that capital. We've spent some of it already, but we're certainly planning on spending that as we migrate throughout 2026. But I think we are optimistic that our leasing pipeline is full, and we're going to kind of refill that signed but not yet commenced bucket of future customers, which will carry with it a high level of CapEx or an elevated level of CapEx. So I think we're optimistic that, that occupancy build is going to continue throughout 2027, which means in all likelihood, you're going to have higher leasing capital in not only just next year, but in '27 as well. But what I would say to that is, I think if you look year-to-date, our leasing capital, we're probably trending $40 million sort of above what's a normalized year. And we're doing -- cash flow is low, but it's not -- it's still reasonable. We've got a lot of NOI growth. So even if you assume that leasing capital remains high, there's a lot of NOI growth that will come online next year and into early '27. So I think just from the NOI growth coming online, cash flow levels are going to improve. And then as you have leasing costs normalize, they're going to improve even more. So I think we see a really clear pathway to very strong cash flow growth over the next several years, but there are a few legs to kind of -- or a few steps to kind of get to, to be there. But hopefully, leasing will continue to be strong and leasing CapEx will probably remain elevated for the next couple of years.

Thank you. Our next question comes from the line of Rob Stevenson of Janney Montgomery Scott.

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 -- I mean, there's a little bit of discretion around expenses. And those can be volatile quarter-to-quarter when you recognize kind of the reimbursements on a normalized level kind of ratably throughout the year. So I would say the biggest swing factor in terms of kind of normalized in that range is probably some discretionary expense spend. So that probably kind of moved it, you would say, on a couple of pennies on either side. And then we always bake in a little bit of something here or there. So you never know, we factor in some bad debts. Those could be at the high end of the range or they could be 0. So that kind of moves things around. And then to the extent that anything other unusual happens, usually just bake a little bit that's in there. But I would say from a leasing perspective, there's really not a lot of spec leasing that's going to drive revenue substantially higher or lower based in the 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 there are certain quarters where there's 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 pretty ratable from a build from Q2 through Q4. I think Q1, there's a little bit -- we typically kind of go down a little bit in terms of occupancy in Q1 just on normal seasonal factors. And then I think if you -- if we go through some of the biggest kind of expirations that we have, they tend to be early in the year. Most of those are backfilled, but you've got downtime on those. So we've got a large lease in Dallas that's going to go from M&O, there's going to be downtime there. It is substantially backfilled -- so that's large leases kick in second quarter and then a little bit in third quarter. So I think you'll probably see occupancy dip a little bit in Q1 from where it was at year-end '26, not -- I wouldn't say it's a huge amount. And then I think from Q2 to the end of the year, we think there's a pretty substantial increase from there.

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.

Thank you. Our next question comes from the line of Nick Thillman of Baird.

Brendan, you have been messaging sort of this ramp-up in occupancy 100 to 200 basis points throughout '26. Just wanted to double check on your comfort level there. And then the underpinning assumptions, is that similar leasing volume of this 300,000 square feet of new deals plus 50% retention, and that's how we get there. Is that the math? Just kind of -- just walk us through sort of that setup there.

Yes. Nick, thanks for the question. Yes. So just to reiterate, I think last quarter, we talked about -- we thought we'd sort of be around 86% for year-end '25. We put that outlook in -- we formalized that in the outlook last night in terms of there, so right around 86%. And then yes, I think as we sit here late in '25, haven't given '26 guidance yet, but I think that 100 to 200 basis points of increase between year-end '25 to year-end '26, I think we're comfortable with that as we stand here now. Now, we'll sharpen our pencil and kind of look at those assumptions and provide formal guidance in February. But I think as we sit here, I think we feel comfortable with that kind of outlook and believe we've got a good pathway of growth between year-end '25 and year-end '26. And then I would say, in rough numbers, I think that's about right in terms of there's probably around 50% retention. That number always goes down the closer you get to kind of those expirations. So it might be mid-40s as it stands now. But I think if we can do 300,000 square feet of new a quarter and we're kind of at the retention levels that we've -- in that level, that's going to put us in position to be between 87%, 88% by year-end '26.

That's helpful. And then, Ted, with the leasing volume remaining healthy here, on the acquisitions, what's the appetite for lease-up risk on sort of the pool of assets you're looking at? And along those lines, as we think about the earnings impact of selling versus buying, are you -- is this FFO dilutive, neutral? How should we think about that?

Yes, great question. Maybe I'll start and Brendan can chime in. Look, we look at everything across the risk return spectrum, and we will absolutely take leasing risk -- that's been our playbook coming out of the GFC. And we will do so in instances where we feel very comfortable about the leasing prospects, the momentum in the market and if we think we can lease it up and get paid for that lease-up risk, more importantly, right? So we are absolutely looking at assets that have vacancy risk that we can come in and add the Highwood-tizing and lease those up and get paid for it.

Yes. Nick, just in terms of the earnings impact, there's obviously a lot of balls in the air. There's a lot of variables. That likely means that things are going to be kind of -- could potentially be noisy sort of quarter-to-quarter. I think the best way that we could probably frame this is -- if we go back to some of the other large kind of asset rotations that we've done, so think about the market rotation plan where we went into Charlotte, exited Memphis and Greensboro or the portfolio of office assets that we acquired from PAC and then subsequently sold a bunch of noncore. I think what we told you is if you sort of give us a year, the unaffected FFO -- the FFO run rate should be unaffected from where it is pre all of those transactions. And our cash flow should be higher, and we will return our leverage to the normalized kind of glide path. So there's obviously a lot of timing. So if dispositions happen first versus acquisitions, that likely impacts it. There's some lease-up stuff that's there. But I think we feel pretty confident that if we're able to do things on a leverage-neutral basis, that long-term FFO outlook is probably going to be unchanged. Cash flow is going to be higher. Leverage is probably unchanged, and we certainly think that there will be an uptick in terms of long-term growth rate and portfolio quality.

Our next question comes from the line of Dylan Burzinski of Green Street.

Ted, I think you mentioned that the capital markets environment continues to improve as we progress throughout 2025. But can you kind of just talk about sort of where for assets that you have sold, where pricing expectations have come in relative to your initial expectations? And maybe if you can follow that up with just any sort of color or detail around bidding tense. Are we starting to see more institutional capital come back? Or is it still, for the large part, mostly high net worth family office type money looking at the office space today?

Sure. First, on the pricing on the dispositions, and Dylan, it's all over the board. I mean, sort of what we're selling today, it's a mix of long-term single tenant with long weighted average lease term to land to lower occupied assets to some of our older assets that are going to have a higher cap rate. So -- but I would tell you, pricing is all over the board. But in general, our pricing is, I would say, meeting or exceeding our expectations of when we -- when we initially took the assets out to market. So the bidder pools are a little deeper. And the buyers, if you go back 2 or 3 years, we didn't recognize a lot of the buyers on the bid sheets. We're now starting to recognize the buyers on the bid sheets, so more familiar capital. Certainly, the debt capital markets are helping, I think, on pricing as they've gotten better, whether it be CMBS, the debt funds, you're starting to see some of the banks get more active as well. So just in general, more -- there's more liquidity in the capital markets today, and that's starting to help on pricing. With regard to the acquisitions, look, I do think there's more institutional capital coming making bids. It seems like from what we hear from the brokers, there's more bids on every deal, every subsequent deal that comes out to market. So I think there's been a lot of capital that if you go back a couple of quarters, they were office curious, and now they're getting more active and really constructive on underwriting office acquisitions. So I think that is just going to help get this capital markets flywheel turning even more and which is going to be helpful for the office sector.

And then maybe one more, if I could. Just -- I know you guys are constantly turning the portfolio and selling noncore assets and reallocating that capital. But I guess as you look at the portfolio today, I mean, is there some percentage of it that you would sort of deem as noncore or that you have interest in disposing of over time?

We often get asked that, and it's really just a continuous portfolio improvement. For us as we buy new assets, fund them with dispositions or sort of pulling from the bottom of the assets. So -- and what I would tell you is what was core or noncore a few years or core a few years ago, it might be noncore today just as a result of growth trends or where we think the long-term growth rate maybe is not what it was a few years ago. So we're always evaluating our portfolio. We do it a couple of times a year as a management team and always reevaluating.

[Operator Instructions] Our next question comes from the line of Ronald Kamdem of Morgan Stanley.

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. Yes, you must have missed the early part of the call. We had the same question. So really, it's what we're looking at now, we're pretty happy with our footprint. And so we're going to -- we're looking at assets that are in our existing footprint that would upgrade the portfolio. So I don't think we've got any market -- our core markets that we wouldn't add to if the right opportunity comes in. But -- so we're looking at stuff really across our entire existing platform.

Great. And then my second question is just on an update on Ovation. I know you guys are not looking to do any sort of M&A development and so forth. But just current thinking there, sort of excitement, could that be at '26, '27? Just what the timing could be on that and what the thoughts are?

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. [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.