Highwoods Properties Q2 2025 Earnings Report

Highwoods Properties EPS Results

• Actual EPS: $0.89
• Consensus EPS: $0.85
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.98

Highwoods Properties Revenue Results

• Actual Revenue: $200.60 million
• Expected Revenue: $203.22 million
• Beat/Miss: Missed by -$2.62 million
• YoY Revenue Growth: -2.00%

Highwoods Properties Announcement Details

• Quarter: Q2 2025
• Date: 7/29/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, July 30, 2025
• Conference Call Time: 11:00AM ET

Highwoods Properties (NYSE:HIW), headquartered in Raleigh, is a publicly-traded (NYSE:HIW), fully-integrated office real estate investment trust (REIT) that owns, develops, acquires, leases and manages properties primarily in the best business districts (BBDs) of Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond and Tampa. Highwoods is in the work-placemaking business. We believe that by creating environments and experiences where the best and brightest can achieve together what they cannot apart, we can deliver greater value to our customers, their teammates and, in turn, our stakeholders.

Highwoods Properties Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong leasing momentum with 920,000 sq ft of second-generation leases (370,000 sq ft new) in Q2 and early Q3, raising the leased rate to 88.9% and prompting an upward FFO guidance revision.
• Positive Sentiment: Management highlighted a combined more than $55 M of annual NOI upside from stabilizing four core assets and their development pipeline, with over 60% already secured through signed leases.
• Neutral Sentiment: No acquisitions or dispositions closed in Q2, though the company is actively underwriting new investments and marketing $150 M of non-core properties to redeploy capital into higher-growth assets.
• Positive Sentiment: The balance sheet remains robust with a 6.3× debt/EBITDA ratio, over $700 M of liquidity and only a $200 M loan maturing in May 2026 that management expects to extend.
• Positive Sentiment: Sunbelt BBD markets are tightening with constrained new supply, rising in-office demand and population growth driving rent gains and net absorption in Nashville, Charlotte, Dallas and Tampa.

Presentation

[Operator]

Good morning. Thank you for attending the Highwoods Properties Q2 twenty twenty five Earnings Call. My name is Matt, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I'd now like to pass the conference over to our host, Brendan Miorana. Brendan, please go ahead.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Thank you, operator, and good morning, everyone. Joining me on the call this morning are Ted Klink, our Chief Executive Officer and Brian Leary, our Chief Operating Officer. For your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplemental, they're both available on the Investors section of our website at highwoods.com. On today's call, our review will include non GAAP measures such as FFO, NOI and EBITDAre.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

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.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Thanks, Brendan, and good morning, everyone. We had another strong quarter with robust second gen 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.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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 920,000 square feet of second gen leasing, including 370,000 square feet of new leasing.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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 $25,000,000 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%.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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'll increase our lease rate by the end of the year. We have over $10,000,000 of NOI growth potential at Glenlake III in Raleigh and Granite Park VI in Dallas, two development properties that delivered in 2023 but are not yet stabilized. We have over $6,000,000 of this NOI potential already signed, but where occupancy hasn't yet commenced. In addition, we have over $20,000,000 of NOI growth potential at the two developments that delivered earlier this year, 23 Springs in Dallas and Midtown East in Tampa.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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 the dwindling availability over the next few years creates an opportunity for meaningful rent growth and high quality second gen product. We're 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.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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 Highwood 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.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

We remain optimistic we'll 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 midpoint of our 2025 FFO outlook, up $02 to a range of $3.37 to $3.45 per share. Since the beginning of the year, we've increased our FFO outlook by $06 at the midpoint or nearly 2%. In conclusion, we're extremely excited about the next few years for Highwoods. We're operating in the strongest BBDs in the Sunbelt that continually have proven to be the places where talent and companies want to be.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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 twelve 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. Brian?

[Brian Leary, EVP & COO at Highwoods Properties]

Thank you, Ted, and 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.

[Brian Leary, EVP & COO at Highwoods Properties]

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 at over 23,000,000 square feet of U. S. Office space is on track for demolition or conversion to other uses this year, far outpacing the almost 13,000,000 square feet of new office space being completed in 2025, which figure in itself is far below the ten year annual average of 44,000,000 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 DVDs with the potential for a meaningful and extended shortage of Class A space in the not too distant future.

[Brian Leary, EVP & COO at Highwoods Properties]

Our Sunbelt DVD 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 us to bear highlighting that the Southeast accounted for more than two thirds of all job growth across The U.

[Brian Leary, EVP & COO at Highwoods Properties]

S. Since early twenty twenty. These three forces improving in office utilization, declining competitive supply and strong demographics 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 three to one. Net effective rents averaging $19.3 a square foot with an average payback of 17.2%.

[Brian Leary, EVP & COO at Highwoods Properties]

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 3.617.6% 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 in the midst of completing our highwoodizing redevelopment program, essentially positioning them to directly compete with new construction. The fourth in 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 two times over.

[Brian Leary, EVP & COO at Highwoods Properties]

Symphony Place in Downtown Nashville started the quarter strong. The seven floor lease with Nashville mainstay and global law firm Holland and Knight was proof positive that the environment and experience we are curating there is what Nashville's best and brightest are looking for, and they are leasing prospects for over 80% of the building. While you never bought a thousand, with these prospects and inbound activity picking up in Nashville, Symphony Place is poised to deliver meaningful organic growth. The back fill update from Nashville is a good segue into Music City's broader market performance with the nation's lowest large metro unemployment rate. Cushman and Wakefield reported Nashville having the nation's third highest positive net absorption and the market's robust demand generated almost 1,000,000 square feet of leasing for the quarter, the highest for Nashville since the 2021.

[Brian Leary, EVP & COO at Highwoods Properties]

JLL added that there are almost 2,000,000 square feet of active requirements in the market and with a decade low construction pipeline delivering at 79% pre leased 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 areas 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 or over 80% occurred in the sub markets Uptown, Midtown and South Park. Our 2,000,000 square foot Charlotte portfolio which is entirely located in the Uptown and South Park BBDs leads the way at 96.6% occupied.

[Brian Leary, EVP & COO at Highwoods Properties]

Our 1,200,000 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. JLO noted that 60% of Dallas' office pipeline is build to suit construction for Goldman Sachs and Wells Fargo and that there are an additional 7,600,000 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 6 development which is currently 59% pre leased and our 642,000 square foot 23 Springs development in Dallas' Uptown BBD which itself is 63% pre lease.

[Brian Leary, EVP & COO at Highwoods Properties]

Also in Uptown and down the street from 23 Springs is our 557,000 square foot in service asset McKinney and 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 1,300,000 square feet of future tenant move ins tied to already executed leases. With an additional 1,400,000 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 and where we ended the quarter at 86.1% occupied but more than 92% leased.

[Brian Leary, EVP & COO at Highwoods Properties]

Our Midtown East development recently delivered 40% pre leased and has strong prospects for another 40% of the building. Underwritten to stabilize in the 2026, Midtown East was the only building under construction 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. Brendan?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Thanks, Brian. In the second quarter, we delivered net income of $18,300,000 or $0.17 per share and FFO of $97,700,000 or $0.89 per share. The quarter included three atypical items. First, we received $3,000,000 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.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Second, we received $1,000,000 of term fees, the largest was attributable to a customer where we proactively took back space early and have subsequently relet this space to a new user with a long term lease. This term fee temporarily boosted 2Q earnings, but will be offset by downtime at the property. Third, we wrote off nearly $1,000,000 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.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Our balance sheet remains in excellent shape. Our debt to EBITDA ratio was 6.3 times at quarter end. We only have $106,000,000 left to fund on our development pipeline and are currently maintaining over $700,000,000 of available liquidity. Our only debt maturity over the next eighteen months is a $200,000,000 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.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

As Ted mentioned, we have updated our 2025 FFO outlook to $3.37 to $3.45 per share, which equates to a $02 increase at the midpoint. The underlying picture is actually stronger than the headline implies. As I mentioned earlier, the second quarter included $01 of higher G and A due to the expensing of predevelopment costs that were not included in our prior outlook. Plus, we pushed $02 of interest income out of the 2025 forecast and into future years. These items have been partially offset by a $01 increase to prior year property tax refunds expected during 2025.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Overall, this equates to $02 of net headwinds that were not included in our April outlook, but these have been more than offset by $04 of higher anticipated NOI resulting in the increase of $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've subsequently relet 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.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

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 2026. These timing issues have moved 130,000 square feet of previously projected occupancy at year end twenty twenty five 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 $25,000,000 of embedded annual NOI growth potential upon stabilization of the Core4. At that point, we had locked in 5,000,000 of this future upside with signed leases.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Today, this number is now up to over $12,000,000 and we have strong prospects for another 5,000,000 to $6,000,000 Our two twenty twenty three development deliveries Granite Park 6 and Glenlake 3 have over $10,000,000 of annual NOI growth potential upon stabilization, over $6,000,000 of which has been secured with signed leases, up from $4,000,000 at the beginning of the year. The two developments that delivered earlier this year, 23 Springs and Midtown East, have over $20,000,000 of annual NOI growth potential upon stabilization. We have secured $14,000,000 of this upside with leases that will commence in the future, up from $11,000,000 at the beginning of the year, plus we have strong prospects for another $3,000,000 In total, these eight properties have over $55,000,000 of annual NOI growth potential above our 2025 outlook. We have locked in over 60% or more than $33,000,000 of this upside with leases that have been signed but are not contributing to 2025 plus we have strong prospects for another $9,000,000 To be clear, it will take time for these signed leases to come online. We are also still capitalizing interest and operating expenses at 23 Springs and Midtown East as these two development projects delivered earlier this year.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

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 twenty twenty six, 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're 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're 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.

[Operator]

First question is from the line of Peter Brimowitz with Jefferies. Your line is now open.

[Peter Abramowitz, SVP - Equity Research at Jefferies]

Yes. Thank you for taking my question. 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 item. Just wondering kind of what else went into the guidance that it didn't necessarily flow through to a slightly larger raise?

[Peter Abramowitz, SVP - Equity Research at Jefferies]

Is there a degree of kind of conservatism still in there and kind of your expectations for the back half?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

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 some other items that went against us, right? So there was $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 and A is higher.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

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 $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 refund. So I think you're getting $04 of higher kind of NOI in those numbers that's split between development NOI and the same property pool.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

So I think that's all pretty good. I would say I would maybe caution you and others to extrapolate, you know, 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 seasonality in numbers. There's moving of expenses that can move from one quarter to another.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

So I think if you extrapolate one quarter to another, it can kind of lead to a false positive or a false negative.

[Peter Abramowitz, SVP - Equity Research at Jefferies]

All right. That's helpful. Thanks, Brendan. And then could you talk about 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 announcement?

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

We're starting to see more high quality assets come to market. I think the bid ask spread is narrowing. You know, 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 not and they're being more constructive on the underwriting.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

So I think sellers have been waiting for this, and they're starting to bring assets to market, and some of which are 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 gonna price it based on our evaluation of risk. And certainly from a return standpoint, it'll be based on the risk adjusted yield.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

So, again, we look at everything and but we are starting to see some attractive opportunities that we've been sort of waiting for.

[Operator]

Next question is from the line of Seth Berge with Citi. Your line is now open.

[Seth Bergey, Senior Analyst at Citi]

Hi. 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?

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Yes, Seth. It's Ted. From a leasing perspective, as you know, we had another really strong Our tour activity remains strong. You know, it's the same trends we've seen for a while continuing to see a flight to quality, flight to capital, flight to amenities, flight to location, same thing we've seen now for several years.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

You know, our leasing CapEx, it's been you know, I think we've we're leveling off. I think we certainly peaked. You know, our net effective rents were incredibly strong this quarter. So our concessions, while it varies by submarket and market, we've got some very strong submarkets where we're seeing concession packages come down. In addition to rates going up, you know, it's still high in submarkets.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

So but overall, I think if you if you have a mix, it's gonna jump around a little bit quarter to quarter. But in general, I think it's fair to say concessions have generally peaked, and market rents are going up. So it should bode well for net effective rents.

[Seth Bergey, Senior Analyst at Citi]

Great. Thanks.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Thank you.

[Operator]

Thank you for your question. Next question is from the line of Rob Stevenson with Janney. Your line is now open.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

Good morning guys. Just to ask the last question in a different way. Given all the leasing, when you take a look at the building improvements, 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 $40,000,000 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?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Rob, it's Brendan. I'll take that one or at least start. I think what I would say is you've probably seen the commission levels, I think, are have been high because of the volume, and those get paid more quickly than the TIs get dispersed. So you've probably seen it kind of show up in commissions, I would say, last year when leasing volumes were very high, new, and in the first half of this year as well. For TI dollars, I would say that I think your question is a good one.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

I think we're going to remain at elevated levels in '20 we were there last year. I think it's probably likely to be a little bit higher in 2025 and probably a little higher than where we were in the first half of the year. And we think in all likelihood, it will remain there in 2026 as well as we kind of keep this occupancy build going for the next several quarters. So we do think it's going to be elevated, I would say not dramatically higher than where we were over the past year or so, but I would say that do think it's going to be high for the remainder of this year and in all likelihood next year as well.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

Okay. That's incredibly helpful. Thank you. And then I guess, Brandon, 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 three thirty seven versus the three thirty five? What's the biggest unknown for you at this point to keep the guidance range that wide?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Yeah. It's so there's probably a couple of expense items, timing related things that are in there. So I would say that there's there's a little bit of that variability within the guide, so that's in there. And then to the extent that we do anything that's meaningful that we have done a little bit of this year, which is proactively kind of take space back early and for long term benefits. So we've done that a few times.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

I think I highlighted some of that in the prepared remarks that we've done. There's some of that which could happen as well with some conversations that are out there. And then we've got a little bit of what I would say are probably a little bit of variability in terms of lease spec lease that's out there. There's some renewals that could could happen or could not. So there's a little bit of positive and negative on the lease side.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

But for the most part, I would say it's probably around expense timing. But probably not a huge amount of variability in terms of where we are now as you point out where we sit in the year.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

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? Or is still an opportunity for you guys to do stuff of materiality?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

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.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

Okay. And then you talked about the term loan that you thought that you'd be able to extend that. Is that the sort of most attractive sort ofcheapest form of debt capital for you guys at this point in time?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

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.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

I don't know if I would necessarily characterize it as the cheapest form of capital.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

Okay. Thanks guys. Appreciate the time this morning.

[Operator]

Thank you for your question. Next question is from the line of Nick Dillman with Baird. Your line is now open.

[Nick Thillman, Senior Research Analyst at Robert W. Baird & Co]

Hey, good morning guys. Maybe Ted will start off with this. Obviously COVID and kind of the pandemic transferred a lot of just 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 then kind of how you guys are evaluating that?

[Nick Thillman, Senior Research Analyst at Robert W. Baird & Co]

Is it still early days, but just longer term sort of view?

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Yeah. Look. It's definitely early days. Right? I mean, obviously, the demand side, the West Coast has seen a lot of demand for AI companies.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

So that's been great for them. In terms of us, look, very early on, I think, you know, companies are obviously I think every company in America is probably looking at how impact how AI may impact their business going forward. But, look, we've been through this before whether it be on densification. Know, I remember twenty years ago, law firms were were gonna be reducing their space by a significant percentage because of the law libraries and all the other things they didn't need. So we've been through different challenges, I think, an office industry for several years, and and we're we've been able to manage through it and get as as the markets continue to grow.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

So AI, don't know what the answer is right now.

[Nick Thillman, Senior Research Analyst at Robert W. Baird & Co]

Okay.

[Nick Thillman, Senior Research Analyst at Robert W. Baird & Co]

And then just question on you guys are kind of through a lot of the large like expirations you had within the portfolio. I guess what do you guys kind of view as like a normalized run rate when it comes to retention as we look at expirations into the next eighteen to twenty four months?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

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 twelve to eighteen months, those numbers go down because you've got anti adverse selection bias that's in kind of in 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 eighteen months, so from where we are now through the 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 of next year is probably in that 45 to 50% range if I kind of had to to 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 twelve or eighteen month period if you look at the preceding twelve to twenty four months.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

So I think that gives us confidence that we're well set up to build occupancy as we go forward over the next eighteen months or so.

[Nick Thillman, Senior Research Analyst at Robert W. Baird & Co]

Very helpful. That's it for me. Thanks.

[Operator]

Thank you for your question. Next question is from the line of Dylan Brzezinski with Green Street Advisors. Your line is now open.

[Dylan Burzinski, Senior Analyst at Green Street Advisors, LLC]

Good morning, guys. Thanks for taking the question. 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?

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Look, Bill. I think certainly Charlotte, Dallas, and Nashville. If you had to rank our markets, it'd be one a, one b, and one c. All three of those markets are outperforming. You know, we're very well leased in Charlotte, so we're not able to move occupancy.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

But if you just think about the core four that we've talked about now for the last couple of quarters, three of the four of those are in Nashville, and we're making significant progress, certainly well ahead of our business plan on what we thought. So the demand in Nashville continues to be really strong. And then what we're seeing in Dallas on our development projects and then just the inbound and net migration to Dallas has been extremely strong, specifically to the submarkets we're in. So we love the demand in those three markets in particular. But at the same time, Tampa's performing very, very well.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Brian talked about it on the preferred on our prepared remarks. We're seeing a lot of great demand there. So I'd say it's pretty broad based and certainly concentrated in those four markets, but broad based in general.

[Brian Leary, EVP & COO at Highwoods Properties]

Hey, Dylan. Brian here. I might just add Charlotte, I think I mentioned it in the remarks, you know, Citigroup and AssetMark announced an aggregate over 700 new jobs and that's, you know, financial services and so that's pretty well expected for Charlotte. I think they've done a great job of kind of capturing that, but the Charlotte Regional Alliance, which is sort of the evolution of the chamber there recently highlighted, there's six inbounds that Charlotte's looking at. Only one of those inbounds currently has a US headquarters.

[Brian Leary, EVP & COO at Highwoods Properties]

So this is not just inbound domestically, even inbound internationally. And those six represent about 5,000 office using jobs. And then I also sort of mentioned this net migration daily, net migration. And this is sort of maybe silly math if you think about it, but adding almost another 50 people a day over a year, it's close to 14,000 new people. I mean, you can just figure out what the impact is in terms of the demand there.

[Brian Leary, EVP & COO at Highwoods Properties]

So I think that's a good one. And then Dallas had mentioned there's 7,500,000 feet of requirements in the market. And Dallas is a huge market, but where we're focused, we're getting great demand there. Nashville's got almost 2,000,000 square feet of active requirements in the market, many kind of code name multi market. The CBD was the most active submarket this last quarter and Ted highlighted Tampa is over a million of active prospects in Tampa as well. And we're really happy with the inbounds we've seen in our development there. Some really kind of blue chip names looking at investing in the best space in Tampa.

[Dylan Burzinski, Senior Analyst at Green Street Advisors, LLC]

Appreciate that color, guys. And then Ted, I think you mentioned obviously development pipelines across your markets are shrinking significantly and no new ground up construction is likely to start given how pressured development economics are today. Can you sort of help sort of frame that in terms of where you think replacement rents would need to be versus where market rents are today?

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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 an uptown in the Knox Henderson area, Preston Center, those three submarkets in particular in in Dallas are are probably at or approaching cost justified rents.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Outside of that, you know, most of our markets is 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. You know, the last few years when the starts haven't been been all that high, the construction costs have continued to go up. You'd think they'd level off, but they have continued to go up. So the rents you need and that's whether it'd be hard costs, financing costs, what have you. So the rents you need are, you know, quite a bit higher than what they are in the existing development pipeline.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

So, again, varies by market, but it's it's a pretty big delta.

[Dylan Burzinski, Senior Analyst at Green Street Advisors, LLC]

Great. Thanks for the color guys. Appreciate it.

[Operator]

Thank you for your question. Next question is from the line of Vikram Malhotra with Mizuho. Your line is now open.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Thanks for taking the questions. 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. Mind just walking us, I'm 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?

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Just how much derisked is 26% growth from here on?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Hey, Vikram. It's a good question. It's we've obviously built a lot of embedded growth through the leasing that we've done to date. And I think if you look at the leased rate versus the occupied rate, a three thirty basis point spread is the highest that I can remember that we've had. Certainly within the past several years, that's the highest spread and is more than double what the average is.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

So our normal lease to occupied spread is call it 100 to 200 basis points or 150 at the midpoint. To be more than double that is a good indicator that occupancy is likely to grow as we go forward. And a lot of those leases are signed as you point out. Now clearly, we're assuming that the economy and the leasing market are going to hold up from here and go forward at roughly where we've been to I think drive and realize kind of the growth potential as we go out into next year and beyond. So there's a little bit of we need things to kind of continue to hold up, but we've certainly done a lot of the good legwork that's there and are well positioned to deliver on that growth.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

I think the way that I would think about this, and again, I know you know this, but we're not in position to sort of talk about with any specifics in terms of numbers for next year or thereafter. We do think we have a good opportunity to grow occupancy as we migrate late in this year and then throughout 2026. So I think we've talked in the past where we would say year end occupancy kind of '25 through '26, I think we have the opportunity to grow that 100 to 200 basis points in a fairly steady manner throughout the year. So unlike in years past where we often have a seasonal dip early in the year and then build back, I think we're likely to see a more steady cadence of occupancy build as we go forward. Beyond that, we've got some of the development deliveries that are there.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

So I think I talked about in the prepared remarks where we are with GP6 and Glenlake III, neither of those assets are we capitalizing any costs associated with those. So as those leases commence and come online, all of that falls to the bottom line. We have the two development deliveries that were earlier this year. Those should also be additive, but we are capitalizing cost operating and interest on those two assets. That NOI will come online and will be additive, but will be somewhat offset by some expensing of interest and operating expenses compared to 2025.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

But all of that gives good growth potential and gives some good growth drivers over the next several quarters. And then outside of that, I would say it's more just the things that are kind of unknown. Don't expect to do a lot of financing over the next eighteen months. The balance sheet is in pretty good shape. And then it would come down to what we may do on the acquisition or disposition side.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

That's helpful. And just one more. I mean, I think the team talked a lot about these big RFPs and, you know, I think you've mentioned like four or five non 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?

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

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? Thanks.

[Brian Leary, EVP & COO at Highwoods Properties]

Hey, Vikram, Brian here. I'll take a shot. 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.

[Brian Leary, EVP & COO at Highwoods Properties]

So it's interesting there. You know, in the Charlotte area, yes, there's a there's a financial services bent, but at the same time, there are some kind of headquarter or US headquarter locations for international firms that that manufacture things that are bringing their manufacturing, the products they build stateside to sell kind of a domestic product made here. So 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.

[Brian Leary, EVP & COO at Highwoods Properties]

They're 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 a very much a public private partnership in in every place. And then they're they're looking at the BBDs that we're in because that's when they kind of bring a external sensitivity in terms of talent. They're very much focused on exceptional experience. And so that's where we're seeing a lot of them.

[Brian Leary, EVP & COO at Highwoods Properties]

Unfortunately, in Charlotte, don't have any room at the end. But because of that, we're getting a good look and understanding who's coming in.

[Operator]

Thank you for your question. Next question is from the line of Ronald Kamdem with Morgan Stanley. Your line is now open.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Hey, just two quick ones. Going back to the comments on the acquisition front, just digging it 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 what the cap rate and IRR ranges. Thanks.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Sure, Ron. Markets, look, there's opportunities out there in multiple markets. You know, just I think sellers, have been waiting to for this time for the cap office capital markets to open up. So we're seeing some high quality assets really across our footprint. Right?

[Ted Klinck, President, CEO & Director at Highwoods Properties]

And, you know, cap rates you know, I'd I'd tell you for a high quality trophy core asset, well leased with a decent wall, It's, you know, plus or minus 7% or so. But, again, that varies by market a little bit, by the weighted average lease term, the credit, whether there's below or above market rents. So there's just a lot of variables that go into it that may cause the cap rate to be a little bit higher or a little bit lower. IRRs are in the, you know, probably high high single digit to low double digit, you know, type range. Again, depending on the market and the and the specific profile of the the the acquisition specific deal.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Great. And then my second question, just commentary about maybe the capital markets feeling a little bit better. Does this mean you guys are sort of closer to sort of bringing Pittsburgh back online for a sale, potentially maybe end of this year, even next year? Just how are you guys thinking about sort of that market exit? Thanks.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Yeah. Certainly. I do think we're closer today than what we were, you know, three months ago, six months ago, two years ago. So so we're still waiting. We're having a lot of leasing success in Pittsburgh.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

So we're gonna be patient and to bring it out the right time. Still might be a little bit early, but we've got you know, if you look at our dispo guidance, it's another $150,000,000 this year. We've got a number of buildings that are out in the market right now and others that we're prepping to bring to market. So we look. We 've had different profiles a lot like what we've sold the last couple years and or last several years.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

It's a mix of single tenant, longer term lease buildings together with some older, higher CapEx, lower growth assets as well. So we've got, you know, a number of those out in the market that we're we're marketing in in multiple markets. So Pittsburgh would be in that mix at the right time.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Great. That's it for me. Thank you.

[Operator]

Thank you for your question. Next question is from the line of Omotayo Okusanya with Deutsche Bank. Your line is now open.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Hi. Yes. Good morning. 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 supply fundamentals, as we kind of look at what's happening 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.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Yeah. This is Ted. I'll take that. Look, I think, as you know, we've entered two markets in the last six years. We went into Charlotte in 02/2019, Dallas in 02/2021.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

So I would and then we've exited three markets during that same period. So but there we're always looking at new markets. But I'd tell you right now, we're sort of pleased with our footprint. We've announced, obviously, exit out of Pittsburgh over time, but we're we're pleased with our market selection at this time.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

K. That's helpful. And then also following up on Vikram's last question. Again, Brendan, I appreciate all the colors in regards to how occupancy could kind of shape up over the next eighteen months or so. Just kind of curious within that, while there are no big kind of 100,000 square foot, move outs that are that are kind of known.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Can you just talk a little bit about kind of like the next level below that, like the the 50,000 to a 100,000 square foot foot leases and if there could be, you know, a couple of those that could kind of hinder occupancy growth?

[Ted Klinck, President, CEO & Director at Highwoods Properties]

Yeah. Let me start if Brian or Brendan want to jump in. Look, demand we're seeing across our markets, clearly, a trend we've seen the last couple quarters is starting to see some larger some larger users out there. But I would tell you our bread and butter is still that five to 15 type thousand square foot user. So, you know, we're gonna pick off a floor or two here and there, but we're you know, our bread and butter is still gonna be, you know, that five to 15.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

You know, then when then when you and we're seeing that in most of our markets. Then when you look at, you know, who's doing it, it continues to be professional service firms, the the law firms, the the the banks, accounting firms, engineering firms, health That's continuing to be a good demand driver for us. And then the other thing that sorta has been slow and steady the last, several quarters we've talked about is our expansions, our next expansion activity. Just in the last four quarters, we've had 53 companies expand, 21 contracts for a net of over 200,000 square feet of net absorption.

[Ted Klinck, President, CEO & Director at Highwoods Properties]

And then, look, a fourth demand driver is the in migration that Brian talked about earlier. You know, this quarter, had eight companies that are new to our markets. All of them, they weren't relocations, but they're companies that are coming to our markets adding offices. That was another 27,000 square feet across four different markets. So it's been pretty diversified, both larger tenants as well as just our bread and butter.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Yeah. Tayo, so what I would just add to Ted's comments are just rather than kinda go space by space kinda getting into into the weeds on things. There's always gonna be customers that move out. There's always gonna be customers that move in. I think in in, I forgot who asked the question.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

But over the next eighteen months or so, if we're in that kind of 45%, 50% retention level of those remaining leases, that 3,100,000 square feet that we've got between now year end 2026. If we continue at 300,000 square feet a quarter of new, that's going to replace more than replace what the likely kind of move outs would be to the positive by probably 200 to 300,000 square feet. And then what I think is likely is you're going to see that leased occupied spread narrow and that's going to add more in terms of occupancy. So that creates the environment to drive occupancy higher. So I think that sets us up well.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

But again, we've got to continue to lease space and we feel confident about that given the pipeline that's out there. But certainly, there's a long way between now and the next six quarters.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Got you. Thank you.

[Operator]

Thank you for your question. Next question is from the line of Young Koo with Wells Fargo. Your line is now open.

[Yong H Koo, Head - Rates and Mortgage Valuation & Hedging Modeling Team at Wells Fargo]

Yes. Great. Thank you. Brendan, just wanted some clarification on the other income. Thank you for that detail on the $3,000,000 payment from Florida.

[Yong H Koo, Head - Rates and Mortgage Valuation & Hedging Modeling Team at Wells Fargo]

How should we think about that other income line item for the rest of the year? And then are there similar type of opportunities in '26?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Jung, it's a good question. Yes, we've kind of been running at that, call it, on a normalized basis, dollars 1,000,000 a quarter. And then obviously this quarter, think you saw that number spike up to 4,500,000.0 or a little more than that in the quarter, which was driven as you point out by the FDOT payment. I would expect that other income line would be more consistent with that 1,000,000 point dollars or so a quarter kind of going forward. There we tend to get some unusual items that happen once a year kind of give or take.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Right? So last year, we had a large repayment on tax from Nashville. That's why if you look at the year over year comparison to Q2 twenty twenty four, it's actually down in that line item. So I would say that in all likelihood, there's probably something that happens sometime between now and over the next few quarters or happens next year, but it's always a little bit difficult to forecast and we don't have visibility into that level yet. So we'll kind of see where that stuff shakes out, but wouldn't be surprising to me if there's some one timers or whatever like that for 2026.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

But I think your question is good that that could be there could be a little bit less of that next year than what we have this year.

[Yong H Koo, Head - Rates and Mortgage Valuation & Hedging Modeling Team at Wells Fargo]

Got it. Thank you, Brandon. And then just one last from me. So it looks like the year end occupancy target might be a little bit lower than previously expected. Does that impact your, same store NOI outlook by any chance?

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

Yes. Good question. Not really. So I think the average occupancy, we didn't change. We are probably a little bit higher in terms of average occupancy in the first half of the year than what we thought kind of coming into the year.

[Brendan Maiorana, CFO & EVP - IR at Highwoods Properties]

But we're because of a few of those leases that I mentioned that we took back some of the space earlier, we've got one customer that we moved from late in 2025 occupancy to early in 2026 occupancy. That year end number is coming in a little bit lower than where we thought, but those are generally all for pretty good reasons. So it didn't have a huge impact in terms of the same store NOI outlook even though it does have less occupancy on one day of the year at the end of the year, but that's a timing issue more than anything else.

[Yong H Koo, Head - Rates and Mortgage Valuation & Hedging Modeling Team at Wells Fargo]

Got you. Perfect. Thank you.

[Operator]

Thank you.

[Operator]

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

[Ted Klinck, President, CEO & Director at Highwoods Properties]

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.

[Operator]

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

Participants

Executives

• Brendan Maiorana, CFO & EVP - IR
• Ted Klinck, President, CEO & Director
• Brian Leary, EVP & COO

Analysts

• Peter Abramowitz, SVP - Equity Research at Jefferies
• Seth Bergey, Senior Analyst at Citi
• Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott
• Nick Thillman, Senior Research Analyst at Robert W. Baird & Co
• Dylan Burzinski, Senior Analyst at Green Street Advisors, LLC
• Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.
• Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley
• Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank
• Yong H Koo, Head - Rates and Mortgage Valuation & Hedging Modeling Team at Wells Fargo