Good morning, and welcome to the Highwoods Properties Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press one followed by four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Wednesday, February 9, 2022. It is now my pleasure to turn the conference over to Hannah True. Please go ahead, Ms. True. Thank you, operator, and good morning, everyone. My name is Hannah True, and I work with Brendan on the Finance and Investor Relations team here at Highwoods. Participating on the call this morning are Ted Klinck, our Chief Executive Officer, Brian Leary, our Chief Operating Officer, and Brendan Maiorana, our Chief Financial 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, including the ongoing adverse effect of the COVID-19 pandemic on our financial condition and operating results. 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 statement. With that, I'll now turn the call over to Ted. Thanks, Hannah, and good morning, everyone. I'd like to start off by welcoming Hannah to our call today. It's great to have you with us. Our fourth quarter was representative of our execution throughout all of 2021 as we delivered strong financial results, solid leasing metrics, and strengthening cash flows, all while improving the quality and resiliency of our portfolio, protecting our fortress balance sheet, and laying the groundwork for additional long-term growth. Our simple and straightforward investment strategy is to generate attractive and sustainable returns over the long term by developing, acquiring, and owning a portfolio of high-quality, differentiated office buildings in the best business districts, which we call BBDs. A core component of this strategy is to continuously strengthen the financial and operational performance, resiliency, and long-term growth prospects of our portfolio and recycle out of properties that no longer meet our criteria. To this end, 2021, we acquired $800 million of high-quality office buildings in Raleigh and Charlotte, completed $350 million of 92% leased office development, acquired approximately $100 million of land for future development in 3 BBDs, and sold $385 million of non-core properties. In addition, since our last call, we've announced $174 million of development that is a combined 36% pre-leased even before putting the first shovel in the ground. Since the beginning of 2019, we have acquired 3.1 million sq ft of best-in-class office assets for a total investment of $1.3 billion, delivered 1.4 million sq ft of highly leased office development for a total investment of nearly $600 million, and sold 6.7 million sq ft of non-core properties for $1 billion. Because of these continuous and meaningful improvements, our portfolio is even more resilient and better poised for long-term growth. Plus, our cash flows have continued to strengthen, as evidenced by 15% higher average in-place office rents and a meaningful reduction in our CapEx spend over these three years. During this same period, we've grown core FFO 9% and our dividend 8% while maintaining a strong balance sheet and investing in the building blocks for additional long-term growth. Turning to our results. We delivered FFO of $1.06 per share in the fourth quarter, which includes $0.09 of land sale gains. Even when we exclude these land sale gains, our full year FFO was $3.77 per share, $0.01 above the high end of our revised outlook in October, and $0.19 above the midpoint of our original outlook last February. In addition to FFO, our operations were also healthy. Same property cash NOI growth was solid at +3.2% for the quarter and +5.5% for the year. We leased 884,000 sq ft of second gen space, including 284,000 sq ft of new leases and 47,000 sq ft of net expansions. Rent spreads were a positive 3.2% on a cash basis, and +11.6% on a GAAP basis. We also signed 158,000 sq ft of first gen leases since our last call. Solid leasing activity helped drive year-end occupancy up to 91.2%. Similar to last quarter, utilization across our portfolio hovers around 40%. We anticipate more customers returning to the office later in the first quarter and during the spring months. Utilization tends to be higher in our suburban buildings and among smaller customers. Despite overall utilization continuing to be significantly below pre-pandemic levels, we are encouraged by the strong customer and prospect interest we're seeing across our portfolio, which translated into healthy leasing in the fourth quarter. Turning to investments. In the quarter, we sold 1 million sq ft of non-core assets for $191 million that were a combined 77.5% occupied. These sales helped bring our debt to EBITDAre ratio down to 5.4 times. We have sold over $350 million of non-core properties since the middle of last year, with another $150 million-$200 million to go to return our balance sheet to pre-PAC acquisition metrics. On the acquisition front, competition for high quality properties in our markets, BBDs, has continued to increase since the beginning of the pandemic. Institutional investors, both foreign and domestic, recognize the excellent long-term value of assets located in the best submarkets across our footprint. We will continue to be disciplined with our capital allocation as we seek to acquire office assets that would further strengthen our performance, resiliency, and long-term growth prospects. Our $283 million development pipeline is 51% pre-leased. Leasing was healthy for our completed but not yet stabilized developments. As you may remember, we started both Virginia Springs Two and Midtown West fully spec in 2019. At our Virginia Springs Two project in Nashville's Brentwood BBD, we're now 90% leased and have healthy interest in the balance of the space. At Midtown West in Tampa, our 150,000 sq ft, $71 million property is 65% leased, and we have solid interest from additional prospects. During the quarter, we announced the 218,000 sq ft, $95 million GlenLake Three office and amenity retail project in Raleigh that is currently 15% pre-leased. We have just broken ground on this property, which will be LEED and Fitwel certified. We have 732,000 sq ft of in-service product in GlenLake that are a combined 97% occupied. GlenLake Three, which is scheduled to be completed in late 2023 and stabilized in early 2026, will provide growth opportunities for existing customers and new users. After year-end, we announced the 135,000 sq ft, 2827 Peachtree office development in a 50/50 joint venture with Brand Properties. This $79 million boutique office development has a healthy mix of on-site and nearby amenities, which have helped drive strong activity. The development is already 62% pre-leased and talks with prospects continue. Our land bank has never been more attractive. It can support $2.3 billion of future office and another almost $2 billion of adjacent mixed-use development via new apartments, shops, restaurants, and hotels. Now to our 2022 FFO outlook of $3.76-$3.92 per share. We assume utilization of our portfolio will gradually increase throughout the rest of the year. At the midpoint of our per share outlook, we project same property operating expenses will be $0.10 higher than last year, while parking revenues will improve by only $0.01. As we have long foreshadowed, as usage increases, OpEx will recover faster than parking revenues, and this is incorporated in our 0%-2% same property cash NOI growth outlook for 2022. As previously stated, we plan to sell $150 million-$200 million of non-core assets to return our balance sheet metrics to pre-PAC acquisition levels. We currently project the dilutive impact of these dispositions to be $0.04-$0.08 per share. In addition, our outlook includes up to an additional $200 million of potential dispositions, the effect of which is not assumed in our 2022 FFO outlook. We have included a placeholder for acquisitions of $0-$200 million. We also continue to have conversations with build-to-suit and anchor customers for additional developments and project $100 million-$250 million of development announcements inclusive of the $79 million 2827 Peachtree development. Before I turn the call over to Brian, I would like to briefly recap 2021. During the year, we generated 5% growth in core FFO, increased our dividend 4%, delivered 5.5% same property cash NOI growth, signed 194 new second gen leases, the most in any single year since 2006, totaling 1.1 million sq ft. Acquired $800 million of high quality office assets in Raleigh and Charlotte. Completed $356 million of 92% leased office development. Acquired $100 million of development land and maintained a strong balance sheet with year-end leverage of 39% and a debt to EBITDAre ratio of 5.4 times. While we're pleased with our 2021 results, we're even more confident that we continue to have the building blocks in place to drive sustainable growth over the long term. In conclusion, while our high quality BBDs and buildings are the beneficiaries of a flight to quality, it is our humble, hardworking, talented teammates, leasing, operating and maintaining our portfolio as a single team who are in the same Highwoods jersey that are our true trophy assets. I would like to take time to thank the entire Highwoods team for their continued hard work and commitment throughout 2021. This type of dedication has put our company in a great position for years to come. Brian Leary. Thank you, Ted, and good morning, everyone. The positive metrics we've posted for the quarter and throughout the global pandemic are a testament to the simple strategy we execute every day. This strategy has positioned Highwoods to be the beneficiary of a great migration to our markets, a great acceleration to our BBDs, and a flight to quality buildings, all of which are both urban and suburban in nature. Most customers have plans to return to the office, are expanding more than they are contracting, and now see the workplace as a vital part of their ability to retain and recruit, but specifically return talent to their organization. Companies that create value through collaboration and culture have come to the clear conclusion that they are simply better together. We believe a workplace that attracts people and allows them to achieve together what they cannot apart will be full and command attractive economics. We're seeing this now throughout our portfolio, and it's evidenced in the results our team is producing. Occupancy increased 80 basis points from last quarter, ending the year at 91.2%. We expect occupancy to dip modestly in the first half of the year before increasing in the latter half. Our utilization currently remains below pre-pandemic levels. We project it will increase steadily throughout the year. We continue to see healthy tour and RFP activity, which is evident in the 884,000 sq ft and 123 deals signed in the quarter, the highest quarterly deal count since 2016. Of these 123 deals, 54 were new, totaling 284,000 sq ft. Emblematic of our balanced portfolio, no one market disproportionately carried the load, as five of our markets garnered eight or more new deals. In addition, we signed 158,000 sq ft of first generation leases in the quarter for our developments in Nashville, Tampa, Raleigh, and Atlanta. Our markets are benefiting from what some have termed the Great Migration. It has accelerated since the onset of the pandemic, is generating economic prosperity, and has started a flywheel of corporate expansions and relocations. These moves will have generational impacts as these talented individuals and organizations plant roots in our markets. As a result of this momentum, we continue to see strong fundamentals throughout our footprint. Atlanta, Raleigh, Nashville, and Charlotte all posted positive net absorption for the quarter. Unemployment rates are returning to near record lows, and multiple markets have grown their office-using jobs since the start of the pandemic. Raleigh has been a clear winner coming out of the pandemic, where tens of thousands of tech and life science jobs have been announced, and where we signed 220,000 sq ft of leases for the quarter, ending the year 92.8% occupied. Witnessing this demand firsthand and recognizing we had little room for growth at our 732,000 sq ft and 97% occupied Glen Lake mixed-use development, we started construction in November on a new 218,000 sq ft office building and a curated collection of shops and restaurants. This will complete Glen Lake's live, work, play master plan and serve as the latest product of our workplace making efforts. This $94.6 million investment is 15% pre-leased, will achieve LEED and Fitwel certifications upon completion, and will be home to McKim & Creed, a national engineering and surveying firm. While our friends in Tampa may have sent the Title Town banner up Interstate 75 to Hotlanta, where the Braves and Dawgs delivered a double dose of euphoria, Tampa has won Zillow's number one spot as the nation's top housing market for 2022, where the market's office rents increased 7% and our team signed 219,000 sq ft of leases for the quarter. Our Midtown West development above an REI and adjacent to a new Whole Foods is now 64.5% leased and is busy with tours and inbound interests. Speaking of Atlanta, the unemployment rate has dropped there below 2.5%. Cushman & Wakefield has noted rents are at an all-time high, and our team signed 136,000 sq ft of second-generation leases in the quarter. Further, our $79 million 50/50 joint venture with Atlanta-based Brand Properties to develop 2827 Peachtree in Buckhead is 62% leased to multiple customers. This project will be completed in the third quarter of 2023 and is projected to stabilize in the first quarter of 2025. Wrapping up in Nashville, where we ended the year 94.8% occupied, we made great progress on our Virginia Springs Two development, which is now 90% leased, up from 59% last quarter. The most significant addition to our land inventory in 2021 was the acquisition of the remaining 77 acres of Ovation. In total, a 145-acre mixed-use development already home to the Highwoods-developed Mars Petcare North American headquarters, and which is currently entitled for an additional 1.2 million sq ft of office, 480,000 sq ft of shops and restaurants, 950 residential units, and 450 hotel rooms. The opportunity inherent in Ovation is a perfect example of our workplace making efforts. Where appropriate, we'll utilize our mixed-use land bank to induce those vertical uses complementary to creating the best possible addresses to conduct business. In conclusion, thank you to the amazing women and men of Highwoods Properties who have put their customers first and allowed us to achieve great things together. Now I'll hand it off to Brendan. Thanks, Brian. In the fourth quarter, we delivered net income of $124.9 million or $1.19 a share, and FFO of $113.5 million or $1.06 a share. As Ted mentioned, the only significant unusual item in the fourth quarter were land sale gains of $0.09. Excluding the fourth quarter land sale gains, our 2021 FFO per share was $3.77, a penny above the high end of our revised outlook of $3.73-$3.76. The better-than-expected FFO in the fourth quarter, which was primarily driven by higher occupancy and lower operating expenses, was consistent with the rest of the year as our FFO of $3.77 a share was $0.19 higher than the original midpoint of the outlook we provided last February. The upside for the full year was driven by $0.08 from operations due to lower anticipated OpEx, recovering parking revenues, and higher occupancy, $0.05 from higher than anticipated NOI from development, the majority of which was from the early delivery of Asurion's headquarters, and $0.06 from the net impact of the PAC acquisition, partially offset by the acceleration of $353 million of non-core dispositions. Our balance sheet is in excellent shape. We ended the year with debt to EBITDAre of 5.4 times, down from 5.6 at the end of the third quarter. Last April, when we announced the acquisition from PAC, we stated our plan was to return our balance sheet to pre-acquisition metrics by mid-year 2022. We're on pace to meet this target with a plan to sell another $150 million-$200 million of non-core properties in the first half of this year. We sold $353 million of non-core properties since the announcement of the PAC acquisition. These sales had an average in-place occupancy of 80% and had a projected cap rate of less than 6% on a GAAP basis and in the low 5s on a cash basis. The remaining $150 million-$200 million of dispositions are likely to have higher average cap rates, most likely in the low 7s on a GAAP and cash basis. During the fourth quarter, we issued a modest amount of shares on our ATM program at an average price of $46.75 a share for net proceeds of $7.2 million, consistent with our ATM activity in the second and third quarters. ATM issuances remain one of the tools we believe are an efficient and measured way to fund incremental investments, particularly our development pipeline, on a leverage neutral basis. As Ted mentioned, our FFO for 2022 is $3.76-$3.92 a share. As disclosed in last night's release, this includes 4-8 cents of dilution from planned dispositions and the anticipated headwind of 8-12 cents of higher OpEx net of anticipated recoveries. The higher projected OpEx has also reduced our outlook for same property cash NOI growth by 200-300 basis points. Excluding this impact, we would be in line with our long-term average. Some of the major drivers of the year-to-year changes in our FFO growth outlook at the midpoint of the range are 10 cents of lower FFO due to higher OpEx net of recoveries, 10 cents of higher revenue on the in-service portfolio, 6 cents of lower FFO due to first half 2022 planned dispositions, 4 cents of higher FFO due to the net impact of a full year of the PAC acquisition, partially offset by a full year impact from 2021 dispositions, and 9 cents of higher FFO due to the full year impact of the $285 million Asurion build-to-suit. These items add up to 7 cents per share of year-over-year growth, which equates to the midpoint of our 2022 FFO outlook. I'd like to take a moment to recap the financial impact from the PAC acquisition and accelerated non-core dispositions. We stated we expected our plan to be approximately FFO neutral upon completion, with growth over the long run. We now expect it will be modestly accretive to our pre-announcement FFO run rate. Our 2021 FFO benefited by a net $0.06 from the $683 million PAC acquisition and $353 million of dispositions, and we project this investment activity will add an additional $0.04 to our 2022 FFO, for a total of $0.10 of accretion. Offsetting this will be the estimated $0.06 dilutive impact at the midpoint from our planned $150 million-$200 million of dispositions in 2022. All in, on an annualized basis, we now expect the PAC acquisition and the corresponding non-core dispositions to be about 2-3 cents accretive to our pre-announcement FFO run rate, with no change to the aforementioned improvement in our long-term growth rate. Finally, as Ted mentioned, over the past three years, we have been very active on the capital recycling front, having sold $1 billion of non-core properties, acquiring $1.3 billion of high-quality, resilient properties with healthy long-term growth prospects, delivering $600 million of highly leased office developments, and adding over $100 million of development land. Over the same time frame, we've increased average in-place office rents 15%, averaged 3.5% same property cash NOI growth, increased FFO 9%, and our dividend 8%, all while maintaining a fortress balance sheet. Plus, as we have long highlighted, our cash flows continue to strengthen, increasing more than 30% over the last three years, resulting in higher dividend coverage on our growing distributions. Our growth may not always be linear quarter to quarter or year to year, but regardless of the short-term impact, we will follow our investment strategy, as we believe it will continue to improve the quality, resiliency, and growth outlook of our portfolio over the long run. Operator, we are now ready for questions. Thank you. If you would like to register a question or comment, please press one followed by four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press one followed by three. One moment please for our first question. That first question comes from Blaine Heck of Wells Fargo. Please go ahead. Great, thanks. Good morning, everyone, and thanks for all that detail. Brendan, can you talk a little bit about the operating expense guidance and what's driving that increase this year? Maybe also remind us of the proportion of leases outstanding that are in a net lease structure versus some variation of gross leases in which you're not getting fully reimbursed for those expenses. Yeah, good morning, Blaine. Thanks for the question. Just first, the easy answer on the triple net versus full service. We've got about 25% of the portfolio that has triple net leases. The remainder is full service gross leases. The full service gross is where there's movement in terms of operating expenses. I'm gonna try to be as concise on this sort of complicated and complex answer as I can. First, what we expect in terms of operating expenses is really to be in a pretty, you know, let's call it, quote, normalized OpEx environment for most of 2022. I think OpEx will probably be a little bit lower in the first quarter than normal, and then we'll be back to normal in the second, third, and fourth quarters, with the thought being, we expect the vast majority of customers to be back in their space by the second quarter. While that may not be their full teams, it's difficult to heat and cool half a suite. We think we'll be incurring a full load of OpEx for the vast majority of the portfolio over the majority of the year. Operating expenses were low in 2020 and 2021, as utilization was low across the portfolio, and that benefited us. For a number of our leases, our operating expenses that were incurred were below the base year expense stop. That accrued to our benefit. As expenses return back to normal and increase, we don't receive recoveries until we get back to that, base year expense stop. As expenses increase in 2022, we think the vast majority of our leases will be at or above those expense stops, but we won't receive the recoveries until we get to those levels. We think that it will be an impact in terms of 2022, because expenses will increase and we won't receive recovery on all of those leases where we're below the base stop in 2021. As we get beyond 2022, we don't think this is likely to be a major issue going forward. I think if expenses continue to increase in 2023, we ought to be protected there. It does hamper FFO growth for this year, as we disclosed in last night's outlook, by $0.08-$0.12. As I think I mentioned in the prepared remarks, it impacts same property growth as well by probably around 200-300 basis points, which is our projection for this year. I would say outside of that, all the other major trends I think feel normal to us. From a revenue standpoint, I think this year is pretty normal in terms of same property. We do have a little bit of average occupancy growth that we expect in same property. Outside of absorbing higher OpEx in 2022, I think our same property growth would be, you know, right in line with that long-term average of, you know, call it between 3%-3.5%. Okay. That's very helpful. Just to be clear, I guess, you know, we're talking about you should be able to kind of phase out this added OpEx burden as leases expire. This shouldn't be kind of a multi-year headwind for you all. It should kind of normalize next year as you explained. Is that correct? Yeah. That's right. I would say as leases expire, so what I would pay attention to just determine whether or not there's any issue with respect to OpEx increases over time is probably looking at rent spreads. When we calculate and provide rent spreads, which I think we're plus 3.2% on this quarter, what we do is we take the operating expenses, and if we're getting $2 of recovery, let's call it, in a lease, we add that to the expiring rent. If the expiring rent on the base rent is $35 and we're getting $2 of recovery, we would say that the expiring rent is $37, and then we would compare the new rent to that. If we were absorbing anything in terms of higher OpEx, you would see that show up in the rent spreads. As you can see, our rent spreads have held up reasonably well, so it hasn't been an issue thus far. You know, to the extent going forward, I think I would pay attention to those rent spreads to make sure that they're holding up in line with historical norms. Yeah. That's very helpful. Second question for you, and then I'll turn it back over. Can you give us any color on your expectations for AFFO or FAD during the year in 2022? Is there any reason we should expect growth in AFFO or FAD to be materially different from FFO growth that you're expecting? I mean, cash flow is always more volatile than FFO. I would say that, I mean, there always tends to be a little bit more variability from year to year. In general, sort of the major movers between, you know, what's gonna move cash flow versus what's gonna move, FFO are probably two main line items. There's the level of non-cash rent, and we disclose that amount, and that ought to be relatively consistent, I think, between 2021 and 2022. Then there's the amount of CapEx, both leasing and building CapEx. In 2021, we probably had leasing CapEx that was a little bit lower than what it otherwise would be. Some of that there tends to be a lag. I think we reported $79 million of leasing CapEx that we spent during 2021, and we committed $91 million of CapEx during the year. I would say the amount of commitments in terms of that leasing CapEx is probably a better gauge of what we are likely to spend on a go-forward basis. That means that maybe there's a little bit more leasing CapEx that we would incur, I'd say, on a normalized basis, but it is hard to tell kind of year to year. Regardless of that, as Ted mentioned, our cash flow is up over 30% over the past few years. Even with a, you know, $10 million or $12 million dollar increase in leasing CapEx, it still means that cash flow would be very healthy. I think, you know, because of that strong cash flow, that was part of the reason why we increased the dividend a couple of quarters ago by over 4%. Great. Very helpful. Thanks, everyone. The next question comes from Jamie Feldman, Bank of America. Please go ahead. Great. Thanks, and good morning. Just a quick follow-up on the last question. You talked about the $91 million committed in 2021. I mean, do you think there's a catch up also that you'll have to spend in 2022 that would take it above the $91 million? That's a good question, Jamie. It is hard to predict. I mean, that's hard to predict. I would say that it's hard to predict. I wouldn't say that it's particularly likely. It certainly could happen. I mean, there's always a little bit of a backlog of leases that are committed to, and then the spend comes later. I think we feel like the backlog is pretty stable. I think from this point, if we continue to commit leasing capital that is, you know, in that range of, call it, $20 million or so a quarter, then I think that number will be pretty stable. But it is hard to kind of predict on a quarter-to-quarter or year-to-year basis. But I wouldn't think there's any major drivers that are gonna cause it to be substantially higher than the commitment levels. Okay. Thank you. I know you gave core guidance, but you also talked about, you know, potential dispositions, potential acquisitions. You know, if you hit those ranges, how should we think about what that could do to earnings? I know, you know, during the call, you guys talked about how your guidance has gone up from kind of initial guidance over the years. You know, what are the upside and downside drivers to guidance here? Yeah, I'll take that, and then maybe Ted or Brian will add in. I think, you know, in terms of the acquisition, we put the range in there for the $150 million-$200 million of the first half 2022 dispositions that we project. Then the remaining acquisitions or dispositions, we didn't put that effect into guidance. We put the $0.04-$0.08 range in for the first half disposition. You know, if we were at $200 million of dispositions and they happen earlier in the first half of the year, then obviously that's gonna be, you know, probably be closer to the $0.08 of dilution. If we are at $150 million of those dispositions and they're call it towards, you know, the latter part of the second quarter, we'll probably be more in the $0.04 range. On the remainder, I think that's just hard to tell, right? I mean, that's just. You know, it depends on the cap rates that we sell, it depends on what we would buy, it depends on timing, all that kind of stuff. I don't know, Ted, do you might want to provide color in terms of what we're looking at? No, look, as Brendan mentioned, we left a placeholder of $0-$200 million, both on additional dispositions on top of the remaining $150-$200 million, and then $0-$200 million on acquisitions as well. It's just a matter of what hits, really. I mean, we're looking at the acquisitions that are in the market. We're underwriting several things right now, but you know, who knows if we're gonna be successful or not. I would think if we're successful on an acquisition, we'll match that with a disposition or whatever. The timing and if we're successful, it's just hard to tell at this point. Okay. Thank you. Brian had mentioned a pretty competitive acquisition market. Can you maybe talk about asset values in your markets and cap rates and maybe some movement to just kinda or you know how they've moved just to give us a better sense of what the investment market looks like? Sure. You know, anything high quality asset with long weighted average lease term, high credit, and certainly the new buildings, the cap rates are pre or below pandemic levels. So sub, you know, in that 5 range. We said we've had several trades in our markets in the 4s as well for some single tenant buildings. So incredibly competitive, both from domestic capital sources and international capital as well in our markets. So, you know, anything of high quality is gonna be chased very hard. On the value add side, I think the pool is not quite as deep, but it's still there. It's still deep enough to make a market. I think we've seen that on our own dispositions as well as, you know, value add transactions that we're chasing in the market. I do think buyers are becoming more comfortable with the underlying fundamentals in markets, so they're able to underwrite vacancy, maybe a little bit more aggressive. It's just competitive all the way around out there right now, Jamie. Okay, thanks. Last for me. Can you just talk about your thoughts on retention? I know you said that occupancy is gonna be dipping early in the year and then recover. You know, how are you thinking about the expiration schedule and retention ratio? Sure. I can start and either Brian or Brendan can jump in. I think from our expiration schedule, I do think our retention might be a little bit lower this year than the expirations this year. I think I've talked about on prior calls, really nothing above 100,000 sq ft expiring this year. You know, our largest is 62,000 sq ft in December, then we've got 50,000 sq ft in May. Both are known vacates, but we've got a strong prospect to backfill both of those with not a lot of downtime. Then after that, it's a 44,000 sq ft expiration in Pittsburgh that we know is a vacate that we don't have any strong prospects at this point. In general, just lower expiration schedule. I think our retention ratio is a little bit lower, but not way off historical levels. Yeah. Jamie, the only thing I would just add to that is, I mean, normally we typically have a seasonal dip with respect to occupancy in the first quarter just because we have a lot of leases that expire at the end of the year. Invariably some of those are, you know, not gonna renew. We have a normal seasonal dip of typically 40-50 basis points in the first quarter or first half of the year, and then tend to build back up in the back half of the year. Our 2022 plan is consistent with that seasonal pattern or normal pattern. We do expect occupancy by the end of 2022 to be a little bit higher than where we ended 2021. We think all those trends are positive for us in terms of what's happening from a leasing perspective throughout the portfolio. Jamie, Brian here. Just to follow on to both what Ted and Brendan just said. We're highly focused and arguably aggressive on retention looking into the future. You may have noticed in the past quarters, term was a little shorter. We're actually talking to a number of customers that are renewing years in advance. Now, it's only maybe a three-year extension, you know, so we're getting them, thinking of them in 2023, 2024, and they're pushing out three or four years. That is pulling down that term, but we're being direct with them. A lot of them are excited about coming back into the space and wanna reposition their space, wanna upgrade their space, as they bring people back, and they're seeing the space as an opportunity to recruit folks and return them. That's also a little, another kind of nuance that's coming out of some of our focus on renewals. That's a good point. Did that show up in your 4Q leasing value? It does. Primarily on that shorter term that you're seeing is being driven partly by that. You know, it was about 20% or so of that kind of approach, but it's something we're gonna continue to do. We found some good success with it, and we're gonna continue to maintain those conversations with our customers going forward. We're not gonna apologize for kind of extending someone out years ahead and keeping them in the space. It's kind of a bad joke among the leasing team when I have the leasing calls, I say to them, I feel much more confident about renewing someone who's in the portfolio than is not. We're taking that approach. Okay. The Pittsburgh move out, when does that hit? That is in September this year. Okay. All right, great. Thanks for all the color. Thank you, Jamie. Thank you. The next question comes from Robert Stevenson of Janney. Please go ahead. Good morning, guys. Can you talk about where parking revenues were in fourth quarter 2021 versus 2019? How much additional expenses are there as that ramps back up? In other words, for each $1 million of incremental parking revenues that come in the door, how much incremental expenses do you have associated with that? Hey, Rob, it's Brendan. Yeah, I would say parking revenues were kind of running probably, you know, about $1 million a quarter below where we thought we would be at the onset of the pandemic on a same property basis. It's certainly gotten better. We've improved from the depths of 2020, but not all the way back there. There's probably another $4 million or so to go. I think the vast majority of that revenue line is gonna fall to the NOI line. There's not a lot of incremental costs associated with additional revenue. Okay, you're basically down about $0.04 a share given your shares outstanding in rough numbers in terms of parking revenue still on an annual basis. Yeah, that's right. Okay. How significant is the amount of your space that existing tenants are currently looking to sublease at this point? Hey, Rob. Brian, I got my finger stuck on the mute button. Couple things. Just from a broad perspective, sublet space is down across our markets. There is one single user in Tampa, kind of a university, medical university that has gone remote in the near term. That has kind of made the biggest move on our numbers, but it's still trending down. I would say, we're down probably across our total markets about 4%. Then within Highwoods, it's just slightly ticked up. In terms of a percent, Brendan, what's your number on that one? It's still a very small amount within the portfolio and holding steady. We're seeing good movements. You're seeing Atlanta going down. You're seeing most of them across the board. Again, Tampa was the one spot where we had it go up. You wouldn't say that it's an overhang on your leasing existing vacancy at this point? No, it's not. To be competitive with tenants trying to sublease space at a lower rate than what you're offering. No, we're not. Yeah, Rob, I mean, we'll call it probably 5%, maybe a little bit less in terms of just kind of overall space that would be available for sublet. It's a very small portion of the portfolio. Rob, just to jump in. A lot of the sublease space has pretty short term on it, so it's just not necessarily competitive with a lot of our, you know, our vacant space. It's just hard for owners once you get below two years to sublease their space. We do have some that has some longer term on it that would be competitive. We've lost a couple deals over the last couple years, probably less than a handful. Most of the sublease space just isn't competitive to our vacant space. The last little thing on that is typically, you might have to write a check as the lessor for a sublease deal. A lot of the folks who are putting space on the market don't wanna necessarily write a check to move someone in there either. That's kind of one of the things we're seeing in the sublet market. Okay. How much of the $150 million-$200 million of first half dispositions do you guys already either have under contract or letter of intent at this point? I mean, what's the likelihood that that is sort of more first quarter weighted than second quarter weighted in terms of the $0.04-$0.08 of dilution? Yeah. We don't have any of it under contract yet. We do have some out in the market, and we're talking with potential buyers on some of it, but none of it is under contract. We do feel comfortable, you know, we're gonna hit that $150-$200 by mid-year. We'll have probably just about everything out in the market in the next few weeks of what we plan to sell. Still feel comfortable we'll get it, but likely gonna be towards the back half of the second quarter. Okay. Yeah, just remember, Rob, I mean, we thought what we said for 2021 was $250 million-$300 million of dispositions that we expected there. We ended up doing $353 million. We were, you know, at the midpoint, $75-$80 million ahead of our 2021 plan. The 2022 plan was probably to have, you know, a fair portion of that $75-$80 million kind of occur, you know, in the middle to early part of the first quarter. We accelerated that into 2021. The 2022 stuff is naturally just gonna hit a little bit later in the first half of the year. Okay. One quick one. Are there any incremental Mark retirement costs in 2022? Was that all taken in 2021? No, zero Okay. Thanks, guys. Appreciate the time. Thank you. Thank you. The next question is from Emmanuel Korchman of Citi. Please go ahead. Hey, good morning, everyone. Brian, maybe this is a follow-up to your earlier comment. Just if we think about the differentiation of quality and the different demands from tenants for that difference in quality. How does that, you know, get defined in your markets? Is it location? Is it age of asset? Is it amenity? I assume you'll say all of that. Help us figure out, like, as we think about quality, how your tenants think about it. Second to that, what happens to the not prime product in these markets? Is it just more capital is pumped in to make it prime product or is a conversion of use the more likely path? Hey, great question, and thanks for asking. First, I think from a quality standpoint, right now it's convenience and amenity, right? I do believe what we've heard in talking to customers is that they wanna get back in the office. Now, they're all coming back at different times, and depending how big they are, you know, multi-city or multinational, they're a little more conservative because when they move, you know, there's a ripple effect across there. But the smaller medium-size are back in. Those that believe in space, they all see it as a competitive advantage to bringing their talent in. As I mentioned in my remarks, we absolutely believe it's both urban and suburban. You know, you are seeing our suburban offices, as Ted noted. They're fuller than the high rises in central business districts just because they're so much more convenient. They have access to, you know, fresh light and park space and things like that. It is a little bit of all of the above. I hate to say that. Obviously, the buildings, you know, they tell a story of health and wellness, LEED certification. Fitwel is what we're doing on the new development. Food and beverage is a big driver, making sure that's convenient. Access to the outdoors is something that we're also focused on. The last thing I'll add to the quality component is having a bit of flexibility built into either a building or a park or kind of adjacent from a portfolio standpoint. And so, you know, we've talked about our spec suite program before. We've talked about kind of co-working before. We do see users coming back and wanting to be able to flex in and out of their space primarily for, you know, larger gatherings, town halls, things like that. We're seeing, you know, more requests for that as we bring people back. Ted, did I leave anything out on that maybe? The only thing I would add is I think we're also seeing a migration of quality owners, long-term owners who are willing to reinvest in their assets. They're not necessarily the quality. It's not necessarily the newest and shiniest assets either. It's you know, buildings are in great locations. This flight to quality is really playing out. We're seeing it in our portfolio. Manny, I think, you know, last quarter I mentioned it in summarizing my prepared remarks. You know, last quarter we signed or last year, 2021, we signed 194 new leases, highest we've done since 2006. You add to that, we signed 18 in our development portfolio. That get vacated or the ones that have been vacant. Yeah, look, I think it's gonna be a conversion in some cases. I think you've probably seen there's been a few big buildings that have sold and been converted to or going to be converted to industrial. I think you're gonna see some multifamily conversions, maybe some hotel conversions over time as well. I think it all depends on where the lower quality product is located and what the highest and best use is going forward. One last little thing, Manny, on that is you're also seeing kind of a densification and addition of mix of uses around some of these assets. In many cases, they're well located, but might have either age or, you know, kind of the mousetrap is a little different than what you might build more recently. We're seeing surface parking lot converted into structured parking with multifamily. You're seeing retail added. And that seems to be them kind of doubling down on place and location, location is still a pretty strong amenity. Thanks, everyone. Thank you. The next question comes from Dave Rodgers of Baird. Please go ahead. Yeah, good morning, everybody. Ted and Brian, I think early on in the prepared comments you said 40% utilization driven by smaller and suburban tenants. I was curious, two questions. One on the vacancy leasing. Is that also being driven by CBD or suburban? Is there a clear distinction kind of between where the new leasing is happening, or is it following really the utilization? And I guess the second question is on RFP and tour activity that you mentioned is up. How does that compare to pre-pandemic levels, Brian? Great questions. First, on the urban/suburban. There's a little bit of a footnote on my answer, is that a good deal of the leasing activity has been suburban, actually, greatly so. That's also where we had the ability to do that leasing. The urban had a higher occupancy too. You had that kind of corporate occupancy in the urban locations that was a bit of a ballast, if you will. We were able to do a good deal of suburban. That's, I think, part of it. Ted, you wanna kind of add on to that? No? Yeah. No, I think that's it. I think we can only lease the space we have vacant, so it's been heavily on the suburban side in the past 12. We don't have, as a company, a lot of large vacancies either, so it has been a lot of small customers this past year, which obviously goes to the 194. A lot of those were smaller customers. I think pretty much covers it. All right, that's fair. Then the RFP and tour activity maybe versus pre-pandemic levels on a like for like basis. You know, how does that compare? Sure. Absolutely. Thanks for the reminder. I knew there was a second part to that. Let's all go back to the first week of March of 2020. It felt like the economy was hitting on all cylinders, and things were going well. I think we had a good amount then. At the same time, I feel like it sure feels like right now the RFP interest equals that. Let me tell you why. Because I think a lot of customers are now viewing their workplace. It has to be a tool. It has to be part of their competitive advantage to not only retain and recruit talent, but to return that talent. They've made the decision that we have got to upgrade our workplace story and our workplace, you know, from an asset standpoint. We're getting inbounds for folks that you know would probably lean in. Before they might have just wanted to be a tenant in someone else's building. They're leaning in to create a workplace. What's interesting is that to build a new building today with escalations, inflation, some guys you know podium parking, it is not inexpensive. What you're seeing is customers issuing RFPs, engaging in a process, whittling it down with clear visibility into the pricing you know the rent premiums that are going to need to be paid to achieve this workplace. I know I'm going to be kind of labeled as a broken record, but it's bearing fruit. The whole you know kind of cliché of the 1-9-90, right? Customers that don't build gigantic power plants or things like that, 1% of their annual revenues is on utilities, 9%'s on real estate, 90%'s on people, and they're realizing how important the 9% can be to bring back their 90% and make them collaborative and to continue that culture. We're seeing now we don't have any to announce or, but we're seeing that that price to pay the premium for a great workplace is something that these companies are bearing. I'd say we're right on it right now. It feels very similar. Now, are we getting exercised and what will happen by the end of the year? Time will tell. It'd be interesting to ask the same question at the end of the year and see which ones came to roost. Thanks for that color, Brian. I really appreciate it. Ted, maybe just last for you on the dispositions. It's been asked a couple of times, but I guess I wanted to get better color. Are you moving forward with the dispositions regardless, or is it the acquisitions and the development that'll drive the dispositions? I guess I heard it two different ways in the call, and I was just kind of curious on kind of what comes first in the order of magnitude for your investment strategy right now for the additional sales. Yeah. Obviously, we're definitely moving forward with the $150-$200. That'll get done just to finish up the Vortex transaction to match fund that. The remaining, you know, $0-$200. Look, I think that'll likely, you know, be dependent on if we find investment opportunities, whether it be development or acquisitions. Okay. Thanks, everyone. Thanks, Dave. Thank you. The next question comes from Ronald Kamdem of Morgan Stanley. Please go ahead. Hey, just wanted to follow up on the expenses question. Maybe asking it a little bit of a different way, maybe a little bit more color on just what are the line items are that are driving it? Is it like cleaning, utilities, like, things like that? Then is it sort of spread out across the portfolio or are there certain markets maybe that have the lion's share of that, would be helpful? Thanks. Yeah. Hey, Ron. Good morning. It's really I mean, I guess I would put it into. Let's just put it into maybe two main buckets, right? There's taxes, which are, you know, we're certainly seeing those increases across a number of our municipalities. We're, that's part of it. Really, it's sort of just the building operating expenses, the day-to-day, right? Most of the day-to-day stuff is increasing because our customers are coming back to the buildings. It's just sort of getting back to normal operations. There is some, you know, certainly inflation is higher now than it has been for a number of years. There's a little bit of inflationary pressure that's on there. The vast majority of the increase that we're absorbing, that we expect to absorb, and not get recovery on, is really just getting those OpEx, those building operations kind of back to normalized levels. Great. That's all my questions. Thank you so much. Thanks. Thank you. Our final question comes from Daniel Ismail of Green Street. Please go ahead. Great. Thank you. Ted, I believe you stated previously that the net effect of rents across your markets are probably down around 5%-10% from pre-COVID highs. I'm curious what your outlook for net effective rent growth is in 2022. Are you anticipating a recovery to pre-COVID levels, or is that still a 2022 timeframe? Sure, Daniel. You're right. I think we've said, you know, 5%-10%. I think we're probably right at maybe the lower end of that now, right in the, you know, mid single digits, down. Look, I do think it's gonna come back, but it's gonna take time. It's gonna be varied by market. You know, the market's competitive still, right? There's still pressure on TIs, both from a competitive standpoint, but then it just costs more on top of that, and then free rent as well. I think it's gonna come back, maybe, differently or different cadence by market. Certainly we're seeing already rent increases occurring in Nashville, that does come with corresponding increases in TIs. I would hope we've hit the bottom, and we're gonna be, you know, starting our way back to get to pre-pandemic levels. Look, we're not there yet, and there's, you know, again, there's increased pressure on costs. Great. Can you remind us what contractual rent bumps are today in the portfolio? Maybe what are you guys negotiating for contractual bumps for today's leases? Yeah, Daniel. We're in the mid-2s, just kind of broadly across the portfolio. That's been very steady, I would say, throughout the pandemic. It's, you know, it really didn't dip too much. Actually, this quarter, we were higher than that in terms of those leases signed. I think we were at 2.7%, so a little bit higher than the average. We've been successful kind of increasing those annual bumps a little bit. That has certainly been, you know, helpful in terms of those net effectives that we're able to keep capturing annual rent bumps across virtually all of our leases. Brendan, maybe since I have you, appreciate all the details on the operating expense side. Maybe just going back to the split between triple net and full service gross leases, is there any interest in pivoting more towards triple net leases? Or is this, you know, beholden to market convention, that you guys are, you know, responding to? Yeah, I mean, it depends. I mean, I think we do often push for triple net leases and do get those often. The one thing I'd like to just, you know, mention is full service leases have actually been beneficial to us over time. Because over time, we have typically been able to control expenses and often reduce expenses, and those reduced expense levels accrue to our benefit. I think we received a lot of benefit from lower operating expenses in 2020 and 2021 as OpEx was low and building utilization was low, and that helped offset a lot of the decline in parking revenue in both 2020 and 2021. Now, as expenses kind of come back up, then we are absorbing that increase. Keep in mind, we got the benefit, so we're really just getting back to kinda normal. Over time, full service leases have actually worked well for us because we've enjoyed the benefit of our control on OpEx. I think if you look at our same property growth over time, typically, we have had same property NOI growth that has outpaced our same property revenue growth because we've been able to control those expenses. We often, I mean, we will push for triple net leases where we feel like we can get them, but full service leases for us typically are, you know, are not problematic. We are protected on increased expenses as long as those expenses are above the base year expense. Got it. Appreciate all the details. Thanks again. Thank you. That was our final question. I'll turn the call back over for any closing remarks. I just wanna thank everybody for being on the call with us this morning, and thank you for your interest in Highwoods. If you have any follow-up questions, please feel free to reach out. Thank you. Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Thank you, and have a good day.