[Management View]
Highwoods Properties demonstrated resilient operational performance in Q2 2025, with robust leasing activity and a higher leased rate. Management focused on upgrading portfolio quality by rotating out of slower growth, more CapEx-intensive properties and into higher growth assets. Significant strides were made towards capturing substantial NOI growth potential in both operating and development properties.

[Outlook]
The company raised the midpoint of its 2025 FFO guidance to a range of $3.37 to $3.45 per share. Management expects occupancy to improve steadily late in 2025 and escalate thereafter, supported by signed leases across core assets and development properties. The balance sheet remains strong, with ample liquidity to support future capital deployment.

[Financial Performance]
Reported FFO was $0.89 per share, with FFO (non-GAAP) totaling $97.7 million. Net income (GAAP) reached $18.3 million, or $0.17 per share. Portfolio occupancy held steady at 85.6%, while the leased rate increased 80 basis points sequentially to 88.9%. The company raised its 2025 FFO guidance midpoint by $0.02 per share.

[Q&A Highlights]
Question 1: Just wanted to kind of dig into the guidance a little bit. (Line breaks here)
Answer: Brendan Maiorana explained that while there were headwinds such as higher G&A and deferred interest income, these were offset by higher NOI, resulting in a $0.02 increase at the guidance midpoint. He emphasized the importance of considering the end-of-year building blocks of NOI growth for future periods.

Question 2: Could you talk about the opportunity set for acquisitions in your markets right now? (Line breaks here)
Answer: Ted Klinck noted that capital markets are opening up, with more high-quality assets coming to market. The bid-ask spread is narrowing, and debt capital markets are improving, making office acquisitions more feasible. Highwoods is evaluating opportunities based on risk-adjusted yields.

Question 3: Expectations for concessions and TIs for some of the leasing done in the quarter? (Line breaks here)
Answer: Ted Klinck stated that concessions have generally peaked, and market rents are increasing, which should bode well for net effective rents. He noted that while concessions vary by submarket, overall trends are positive.

Question 4: Given all the leasing, should we expect a spike in building improvements, tenant improvements, and leasing commissions? (Line breaks here)
Answer: Brendan Maiorana indicated that commission levels have been high due to volume, and while tenant improvement dollars are expected to remain elevated, they are not anticipated to be dramatically higher than previous levels.

Question 5: What's the biggest swing factor between hitting the guidance range? (Line breaks here)
Answer: Brendan Maiorana mentioned expense timing and proactive space recapture as potential variability factors within the guidance range. He noted that acquisitions or dispositions are unlikely to impact numbers significantly due to timing.

Question 6: Have you taken a look at potential impacts of AI on demand? (Line breaks here)
Answer: Ted Klinck acknowledged that AI's impact is still early days, and while the West Coast sees demand from AI companies, Highwoods is monitoring how AI may affect business going forward.

Question 7: Expectations for lease retention over the next 18 to 24 months? (Line breaks here)
Answer: Brendan Maiorana projected retention levels in the 45%-50% range, higher than historical averages, as the company has worked through large known move-outs.

Question 8: Demand backdrop across market footprint? (Line breaks here)
Answer: Ted Klinck highlighted Charlotte, Dallas, and Nashville as outperforming markets, with strong demand and significant progress in Nashville. Tampa also shows positive demand trends.

Question 9: Development pipelines shrinking, where do replacement rents need to be versus market rents? (Line breaks here)
Answer: Ted Klinck explained that replacement rents vary by market, with Dallas approaching cost-justified rents, while other markets are 20%-40% off due to rising construction costs.

Question 10: Occupancy growth potential into '26? (Line breaks here)
Answer: Brendan Maiorana noted a 330 basis point spread between leased and occupied rates, indicating potential for occupancy growth. He expects a steady cadence of occupancy build throughout 2026.

Question 11: Competitiveness of RFPs for headquarter space? (Line breaks here)
Answer: Brian Leary described public-private partnerships in attracting companies, with states offering incentives and focusing on exceptional experiences in BBDs.

Question 12: Acquisition front, cap rate and IRR ranges? (Line breaks here)
Answer: Ted Klinck stated cap rates for high-quality assets are around 7%, with IRRs in the high single-digit to low double-digit range, varying by market and asset profile.

Question 13: Bringing Pittsburgh back online for sale? (Line breaks here)
Answer: Ted Klinck indicated that while leasing success in Pittsburgh continues, the timing for market exit is still being evaluated, with other dispositions in progress.

Question 14: Entering new markets or exiting additional markets? (Line breaks here)
Answer: Ted Klinck expressed satisfaction with the current market footprint, with no plans to enter new markets or exit additional ones beyond Pittsburgh.

Question 15: Impact of lower year-end occupancy target on same-store NOI outlook? (Line breaks here)
Answer: Brendan Maiorana clarified that while year-end occupancy is lower due to timing, it does not materially affect the same-store NOI outlook.

[Sentiment Analysis]
Analysts and management maintained a constructive tone, with optimism about leasing activity and future growth potential. Management expressed confidence in the company's strategic direction and market positioning.

[Quarterly Comparison]
| Metric | Q2 2025 | Q1 2025 | YoY Change |
|--------|--------|--------|------------|
| FFO per share | $0.89 | $0.87 | +2.3% |
| Net Income | $18.3M | $17.5M | +4.6% |
| Occupancy | 85.6% | 85.6% | Flat |
| Leased Rate | 88.9% | 88.1% | +0.8% |

[Risks and Concerns]
Elevated leasing capital expenditures are expected to remain high due to volume, impacting financials in 2025 and 2026. Year-end occupancy is projected towards the low end of the outlook due to proactive space recapture. Expense variability could cause fluctuations within the 2025 FFO range.

[Final Takeaway]
Highwoods Properties showcased strong leasing activity and financial performance in Q2 2025, with management focused on strategic portfolio upgrades and capturing NOI growth potential. The company is well-positioned to leverage its strong balance sheet and market presence in the Sunbelt's best business districts. While challenges such as elevated leasing capital expenditures and occupancy timing exist, the overall outlook remains positive, with anticipated gains in occupancy and earnings through 2027.