Highwoods Properties (HIW) This autumn 2022 Earnings Name Transcript

Highwoods Properties (HIW -0.50%)
This autumn 2022 Earnings Name
Feb 08, 2023, 11:00 a.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Members

Ready Remarks:

Operator

Good morning and welcome to the Highwoods Properties incomes name. [Operator instructions] As a reminder, this convention is being recorded right now, Wednesday, February 8, 2023. I’d now like to show the convention over to Hannah True. Please go forward.

Hannah True — Investor Relations

Thanks, operator. And good morning, everybody. Becoming a member of me on the decision this morning are Ted Klinck, our chief government officer; Brian Leary, our chief working Officer; and Brendan Maiorana, our chief monetary officer. To your comfort, right now’s ready remarks have been posted on the net.

In case you have not obtained yesterday’s earnings launch or supplemental, they’re each obtainable on the buyers part of our web site at highwoods.com. On right now’s name, our evaluation will embrace non-GAAP measures similar to FFO, NOI, and EBITDAre. The discharge and supplemental embrace a reconciliation of those non-GAAP measures to essentially the most straight comparable GAAP monetary measures. Ahead-looking statements made throughout right now’s name are topic to dangers and uncertainties.

These dangers and uncertainties are mentioned at size in our press releases in addition to our SEC filings. As , precise occasions and outcomes can differ materially from these forward-looking statements, and the corporate doesn’t undertake an obligation to replace any forward-looking statements. With that, I will flip the decision over to Ted.

Ted Klinck — President, Chief Govt Officer, and Director

Thanks, Hannah. Good morning, everybody. We had a powerful finish to a powerful yr for Highwoods. Within the fourth quarter, we loved stable leasing when it comes to each quantity and economics; acquired a best-in-class property in Uptown Dallas; positioned in service our extremely profitable Midtown West growth in Tampa; introduced Midtown East, our second growth in Midtown Tampa; and delivered sturdy FFO of $0.96 per share.

Our wholesome leasing through the fourth quarter is considerably contradictory to the broader macro atmosphere, with rates of interest up sharply, restricted capital availability, and widespread considerations of a pending recession. We proceed to imagine that, to be resilient, our portfolio have to be diversified and never be overly reliant on any single buyer, market, submarket, business, or lease dimension. This diversification is a core part of our long-stated, easy, and simple aim to generate enticing and sustainable returns over the long run. Our largest market, Raleigh, is lower than 22% of revenues.

Our largest buyer, Financial institution of America, is lower than 4%,. Our prime 20 clients account for lower than 30%. Our largest business, the extremely diversified skilled, scientific and technical companies class, is lower than 30%. And our common lease dimension is beneath 15,000 sq. ft.

We imagine this purposeful diversification, our high-quality portfolio, and continued sturdy inhabitants and job development throughout our markets has pushed our sturdy leasing because the onset of the pandemic, together with all through final yr. In 2022, we signed 1.5 million sq. ft of latest leases, essentially the most in any yr since 2014. We ended the yr on a optimistic observe with 337,000 sq. ft of latest leasing and 924,000 sq. ft of whole second-gen leasing. Within the fourth quarter, we signed 28 expansions, practically half of our renewal depend, with expansions outpacing contractions by a ratio of three.5 to 1.0, equating to 81,000 sq. ft of internet expansions.

As well as, we signed a 312,000-square-foot renewal at a 50-50 JV property in Richmond. This renewal was for 100% of the client’s prior area with a roll-up in money rents and restricted TIs. As a reminder, JV leasing will not be included in our general leasing statistics. As we transfer into 2023, our occupancy and similar property money NOI will probably be negatively impacted by the 263,000-square-foot move-out by Tivity within the Cool Springs BBD of Nashville on the finish of this month, an area that we’ve already considerably backfilled.

The backfill buyer’s lease is not scheduled to start till early 2024. As is our observe, we don’t take away in-service buildings from our similar property pool. Along with our stable leasing efforts in 2022, we’re additionally happy with our funding exercise through the yr. We acquired $400 million of best-in-class belongings in Charlotte and Dallas, each with significant long-term development potential.

We positioned in-service roughly $100 million of 99% leased growth. We introduced over $400 million of growth in Dallas, Atlanta, Tampa, and Charlotte. And we bought $133 million of noncore land and buildings. This quantity of labor, mixed with our high-quality workplace portfolio within the strongest BBDs all through the Solar Belt, provides us the constructing blocks we have to generate extra long-term development.

Turning to our outcomes. We delivered FFO of $0.96 per share within the fourth quarter. Our full-year FFO was $4.03 per share, together with $0.13 of internet land sale good points. Excluding land sale good points, our full-year FFO was $3.90 per share, $0.06 above the midpoint of our preliminary 2022 outlook, even with the unanticipated sharp rise in rates of interest.

Turning to investments. Within the fourth quarter, we expanded our presence within the dynamic Dallas market by as soon as once more partnering with native sharpshooter Granite Properties, this time to accumulate McKinney & Olive in Uptown Dallas in a 50-50 JV for a complete funding of $197 million at our share. McKinney & Olive is a trophy mixed-use constructing with roughly 500,000 sq. ft of workplace and 50,000 sq. ft of retail. The constructing is well-leased with rising clients and common rents estimated to be 35% under market.

This funding, priced under substitute price, gives a singular mixture of a beautiful going-in money stream yield with the chance to earn development-like returns as we roll rents as much as market. Additional, this constructing is simply 4 blocks from our 23Springs growth, offering ample alternative for leasing and working synergies with what we imagine will probably be two of the perfect buildings in Uptown. Through the quarter, we additionally introduced the Midtown East growth in a 50-50 JV. This challenge will embody 143,000 sq. ft within the extremely profitable Midtown Tampa mixed-use growth.

The whole price is estimated at $83 million with our share being half of that. This announcement follows our first workplace growth in Midtown Tampa, Midtown West, which we positioned in service through the fourth quarter, as initially scheduled, at 97% leased. We began Midtown West on a totally spec foundation in late 2019. And regardless of the pandemic, the challenge leased up efficiently at rents at or above our authentic professional forma.

Our 1.6 million-square-foot growth pipeline now represents a complete funding of $518 million, at our share, throughout 5 completely different markets and is a mixed 21% pre-leased. Three of these developments, representing practically 800,000 sq. ft and $234 million of whole funding, at our share, are scheduled to ship in 2023 however will not be projected to stabilize till 1Q ’25 by means of 1Q ’26. With rising rates of interest and lowered debt availability, the funding gross sales market has slowed meaningfully over the previous few quarters. Thankfully, our stability sheet is in wonderful form, which permits us to be affected person with our disposition efforts.

Over the long term, we’ll proceed our technique of monetizing properties we imagine have under common development prospects, restricted upside, or are capex intensive, and we’ll use the proceeds to replenish our dry powder and in the end recycle into higher-growth properties. As illustrated in our 2023 outlook, we anticipate to be a internet vendor this yr, though the amount of tendencies will depend on the stabilization of the workplace funding gross sales market. Our plan is to promote as much as $400 million of noncore belongings this yr, whereas we imagine acquisitions are unlikely. Our preliminary 2023 FFO outlook is $3.66 to $3.82 per share.

On the midpoint, curiosity expense will probably be considerably increased as a result of rising charges, and we additionally challenge increased similar property working bills. Similar property money NOI development is projected to be flat on the midpoint, under our historic common, as a result of increased opex and decrease common occupancy, largely because of the Tivity move-out. Whereas our 2023 FFO outlook is under 2022 precise outcomes, as a reminder, we’ve grown normalized FFO per share annually for 12 consecutive years at a 4% compounded common fee. For the reason that onset of COVID at the start of 2020, we’ve acquired 3.2 million sq. ft of best-in-class workplace belongings for a complete funding of $1.2 billion, delivered 1.2 million sq. ft of extremely leased workplace growth for a complete funding of practically $500 million, and bought 6.4 million sq. ft of noncore properties for $1 billion, all of the whereas rising normalized FFO per share 11% and persevering with to strengthen our money flows.

With our ever-improving portfolio high quality, we’re now much more resilient and higher poised for long-term development. In conclusion, whereas our high-growth BBDs and high-quality portfolio obtain many of the consideration from our shareholders, our humble, hard-working, and proficient teammates are those who drive our success. I want to thank our complete Highwoods crew for his or her continued dedication and tireless dedication to our firm through the previous yr. It’s their effort that has positioned us for continued success for a few years to come back. Brian.

Brian Leary — Govt Vice President, Chief Working Officer

Thanks, Ted. and good morning, everybody. As Ted talked about, a powerful fourth quarter capped off a powerful 2022 and a powerful three-year run by means of the pandemic that noticed the crew and portfolio meet each problem and produce compelling outcomes. We have leaned into our BBD technique to improve markets and belongings by taking a deliberate method to diversify geographic attain throughout the Solar Belt’s high-growth markets, which embrace six of the top10 and 5 of the highest six U.S.

Markets to Watch per the newest PwC/City Land Institute Rising Traits in Actual Property report. Inside these markets, our BBDs are each city and suburban and have proved profitable in assembly our clients the place they like to be. Suburban workplaces have confirmed to be aggressive choices when weighing a person’s and group’s flight to quality-of-life calculus as evidenced by the best bodily occupancy and leasing exercise throughout our portfolio and the Solar Belt. It’s our perception that the best figuring out issue of a office being commute-worthy is the magnitude of the commute burden the worthiness has to beat.

Our city and suburban BBD portfolio gives quite a lot of choices and facilities with regard to commuteworthiness and has attracted a buyer base throughout a broad spectrum of industries and sizes. Small and medium-sized clients, our bread-and-butter with a mean buyer dimension lower than 15,000 sq. ft, are disproportionately again within the workplace and increasing. This buyer combine has allowed our portfolio to climate the ebbs and flows of earlier cycles, a pandemic, and evolutions within the so-called future of labor. Whereas concrete, metal, and glass is probably not essentially the most versatile of supplies, we’re formalizing the number of versatile work choices we provide beneath our Highwoods Commons banner primarily based on the success we have needed to date.

Whether or not it’s convening a City Corridor in our Spark conferencing hubs, taking occupancy on one among our devoted full-floor spec suite collections, or reserving one among our final Zoom rooms we name the (co)lab, the Commons platform gives our clients scalable flexibility with regard to area and length and will be tailor-made to their particular wants. It consists of each formal and casual areas, all conceived round collaboration, and the platform enters 2023 having delivered over 100 such areas with wholesome new internet rental earnings related to it. This deliberate diversification throughout quite a lot of components makes our portfolio extra resilient. Coupled with our method to creating compelling and aggressive work-placemaking experiences, we’re assured that the Highwoods portfolio will proceed to function a location of selection for the perfect and brightest people and organizations.

To that finish, our crew completed the yr with stable monetary and working outcomes for the fourth quarter, signing 924,000 sq. ft, together with 28 expansions, essentially the most internet expansions we’ve signed because the starting of 2018. As Ted talked about, this doesn’t embrace the 100% renewal of our 312,000-square-foot JV-owned property in Richmond by means of 2034. Web efficient rents for the quarter have been increased than our five-quarter common, and our internet efficient rents for the yr signify a document excessive. Whereas there’s typically a lot deal with money or GAAP lease spreads, we’ve lengthy acknowledged that our leasing focus is securing the perfect general economics.

For instance, we could commerce decrease face rents for decrease TIs or free lease if the general internet efficient rents are enticing. Our all-time excessive for internet efficient rents through the yr is a powerful endorsement of our Solar Belt, BBD, and diversified portfolio technique. Drilling down on our market exercise. In Raleigh, we signed 263,000 sq. ft and ended the quarter 92% occupied and the place market rents grew 5.1% yr over yr per CBRE.

Our native crew is seeing wholesome exercise to date this yr, and we anticipate this to proceed, led by job development in skilled and monetary service corporations. Second, when it comes to quantity for the quarter, Nashville signed 225,000 sq. ft and is nearing the end line on Highwoodtizing virtually one million sq. ft of belongings in Brentwood and Cool Springs, the 2 BBDs that garnered the vast majority of leasing exercise for your entire Nashville market in 2022. Our signature reimagining and repositioning of those belongings have been well-received, resulting in the substantial backfill of our portfolio’s largest 2023 lease roll in Tivity 5 months previous to expiration. Based on Cushman & Wakefield, the Nashville market posted optimistic internet absorption for the quarter and a 4.7% year-over-year enhance in market lease.

As Ted talked about beforehand, occupancy will probably be decrease in our Nashville portfolio in 2023 as Tivity vacates and our substitute buyer’s lease would not start till the start of 2024. Shifting additional south to Tampa, which leads the State of Florida for internet New York Metropolis resident relocations, we positioned in service our 97% leased Midtown West three way partnership growth within the quarter and introduced Midtown East, a 143,000-square-foot mixed-use growth which can supply the best views within the Westshore BBD. Midtown has established itself as an deal with of selection for blue-chip organizations who’ve positioned a precedence on recruiting, retaining, and returning expertise. Our latest markets in Charlotte and Dallas are nice examples of decisively leaning into our easy and simple technique and executing efficiently through the huge and deep relationships we have constructed over time.

With the off-market acquisition of 650 South Tryon in Charlotte, the Queen Metropolis now stands as Highwoods’ fourth largest contributor to NOI. With the December acquisition of McKinney & Olive, a 557,000-square-foot, 99%-leased tower within the coronary heart of Dallas’ Uptown BBD, which was tops available in the market for annual absorption and rental development for 2022, we’re on monitor for Dallas to contribute 6% of professional forma NOI to our backside line following the completion and stabilization of our two growth initiatives. In conclusion, each Highwoods teammate stays centered on making our various portfolio essentially the most talent-supportive and commute-worthy it may be. We imagine this method will allow our clients and their groups to realize collectively what they can’t aside, and once we do that, we’ll create worth for our clients and, in flip, our shareholders. I will now flip the decision over to Brendan.

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Thanks, Brian. Within the fourth quarter, we delivered internet earnings of $27.6 million, or $0.26 per share, and FFO of $103.1 million, or $0.96 per share. There have been no important uncommon gadgets within the quarter. For the yr, our FFO of $4.03 per share got here in on the midpoint of the upwardly revised outlook we offered in October. This was $0.19 above our authentic 2022 FFO outlook.

Excluding $0.13 per share of land sale good points, internet of impairments, core FFO in 2022 was $3.90 per share, or $0.06 above the midpoint of our authentic outlook. The upside in core FFO in 2022 in comparison with the midpoint of our preliminary outlook was because of the following: $0.08 of upper NOI, largely pushed by lower-than-forecast opex and better parking revenues; $0.02 from much less disposition exercise than initially deliberate; and $0.01 from acquisitions. These things mixed for $0.11 of upside and have been partially offset by $0.05 of upper curiosity expense attributable to higher-than-forecasted charges on our variable fee debt. Along with sturdy FFO through the yr, our money flows proceed to strengthen.

Even with what we imagine is a horny present dividend yield of over 6.5%, we had sturdy protection in 2022 with a CAD payout ratio beneath 75%, offering us significant retained money stream to reinvest. We now have been purposeful with our deal with strengthening money flows. We have bought belongings that have been capital inefficient and recycled into acquisitions and growth initiatives with increased long-term money stream yields. To quantify this, since 2019, our money NOI is increased by 16%, or $75 million, and our capital spend, leasing and upkeep capex is down 8%, or $12 million, leading to $87 million extra in money generated from our portfolio and a ratio of capex to NOI that has improved by 15%, with none significant enhance in our fairness base.

Capex spend is commonly lumpy quarter to quarter or yr to yr, however whatever the short-term fluctuations, the pattern is obvious. Our portfolio has turn into extra environment friendly and our money flows have continued to strengthen. Our stability sheet is in wonderful form. We ended the yr with debt to EBITDAre of 5.9 instances, up from the third quarter because of the acquisition of McKinney & Olive and continued funding in our growth pipeline, however nonetheless low general.

We now have ample liquidity, with over $550 million between our line of credit score and undrawn quantities on the development loans at our Dallas growth JVs, which gives us loads of room to fund the remaining $359 million to finish our growth pipeline. We now have purposely arrange the stability sheet with ample flexibility as we’ve over $900 million of debt that’s prepayable with out penalty, and no consolidated debt maturities till the top of 2025. This matches properly with our funding plan for the yr the place we anticipate to be a internet vendor. We anticipate to cut back our floating fee publicity as we transfer all year long with deliberate disposition proceeds.

We even have a stable pool of unencumbered belongings and the monetary flexibility to acquire longer-term, fixed-rate debt. As Ted talked about, our FFO outlook for 2023 is $3.66 to $3.82 per share. As , the biggest headwind for 2023 is increased rates of interest. Primarily based on the present SOFR curve, we anticipate to incur $0.25 to $0.30 per share of upper curiosity expense in 2023, in comparison with what the ahead curve implied simply 12 months in the past.

As I discussed earlier, we purposely structured our stability sheet to offer us optionality to have the ability to repay debt with out penalty. Whereas this implies we anticipate increased projected curiosity expense within the quick time period, given the forecasted peak in SOFR throughout 2023 and with no fastened fee debt maturities till 2027, we’re positioned to learn from a downward pattern within the rate of interest curve after this yr. In our launch final night time, we acknowledged an anticipated headwind of $0.08 per share on the midpoint from increased opex, internet of anticipated recoveries. The upper projected opex, mixed with decrease common occupancy, principally associated to the Tivity moveout, has negatively impacted our similar property money NOI outlook in 2023.

12 months-over-year, similar property comparisons are sometimes useful, however 2023 is considerably distorted by the unusually low opex from the primary half of 2022. Utilizing our extra normalized second half of 2022 as a comparability level, we anticipate optimistic money NOI development in our similar property pool in 2023. Lastly, as you might have observed, we made some routine SEC filings yesterday and this morning. Beneath SEC guidelines, S-3 shelf registration statements sundown each three years.

It has been three years since our final shelf submitting. Because of this, final night, we filed a brand new S-3 with the SEC. This was a joint shelf submitting by the REIT and the working partnership that registers an indeterminate variety of debt securities, most well-liked inventory, and customary inventory for future capital market transactions. With this new shelf in place, we additionally wanted to refresh our long-standing ATM program, which we filed through Kind 424(b) this morning.

As , protecting an ATM program in place is without doubt one of the many arrows we prefer to hold in our capital-raising quiver. To be clear, the FFO per share outlook that we offered in final night time’s launch assumes no ATM issuances throughout 2023. Operator, we are actually prepared for questions.

Questions & Solutions:

Operator

Thanks. [Operator instructions] Our first query is from the road of Camille Bonnel with Financial institution of America. Please go forward.

Camille Bonnel — Financial institution of America Merrill Lynch — Analyst

Good morning. Just some questions on the identical retailer NOI outlook you offered. Once we take into consideration your occupancy steering, excluding the affect of the big move-out in Q1, what kind of retention ratio is embedded in your outlook?

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Hey, Camille. It is Brendan. Thanks for the query. So, our retention, once we have a look at 2023 when it comes to what’s remaining at year-end 22, is under common.

So, with the Tivity move-out, that’s — general, together with that, we’re most likely round 40% of the 2023 expirations. So, if we again that quantity out, that goes again as much as — we’re most likely slightly bit beneath 50% general, and I have to sort of simply seize that proper in entrance of me, however that is most likely about the place that quantity could be, which is roughly in keeping with common once we’re at this level within the yr the place you could have simply the ahead 4 quarters. Over time, we do a whole lot of early renewals, in order that quantity tends to be increased. However 50% as we roll into a brand new yr for the ahead 4 quarters is about common for us.

Camille Bonnel — Financial institution of America Merrill Lynch — Analyst

Thanks. And actually stable leasing final yr. Trying ahead, although, and perceive it is a very difficult time, however are you able to additionally discuss to your expectations for brand new leasing quantity this yr?

Ted Klinck — President, Chief Govt Officer, and Director

Certain, Camille. It is Ted. Look, clearly, final yr, we had a very good yr. We signed 3.3 million sq. ft of leases, 1.5 million sq. ft of latest leasing.

New clients come into excessive woods is, , roughly 180 new clients that got here into our portfolio, which was an amazing quantity. I feel that was, , essentially the most new leases we’ve since 2014. And I feel three of the 4 quarters, we had over 300,000 sq. ft of latest leasing. So, we have been very happy with leasing.

And clearly, it is quarter to quarter. However, , we’re off to a very good begin in first quarter. You realize, our leasing pipeline is lively on — in all of our markets. I’ll say, as we have a look at the pipeline, it is a whole lot of smaller offers.

You realize, I feel we have all seen that and you have heard it from others, and that was the case for us actually in 2022 as properly. You realize, leasing exercise to giant customers kind of hit the pause button late within the yr. However simply, , the demand we’re seeing proper now performs to what our core portfolio is, smaller and medium-sized clients the place we continued to see demand. So, first quarter, it is persevering with, however it’s a whole lot of small clients.

However the quantity into our actions, , fairly good, possibly slightly bit slower than, , second half of final yr however nonetheless fairly first rate.

Brian Leary — Govt Vice President, Chief Working Officer

Camille, Brian Leary right here. I would simply add on for slightly extra complexion into that momentum that Ted talked about. The smaller, midsize, who’re they? Regulation companies. So, it is attention-grabbing.

I do know there is a concept that regulation companies simply transfer round, however what we’re seeing in our markets are quite a lot of regulation companies which can be coming in from out of market, planting a flag, after which rising. And so, we have seen that, say, in Charlotte the place we landed an inbound regulation agency from New York, opened an workplace in one among our spec suites, grew into the area subsequent door, and is now rising additional. Monetary companies, engineering. We’re seeing the engineering companies, I feel, begin to get the momentum with the infrastructure invoice beginning to discover its manner down into the native markets as properly.

So, just a bit additional coloration.

Camille Bonnel — Financial institution of America Merrill Lynch — Analyst

Recognize the element there. Thanks for taking my questions.

Ted Klinck — President, Chief Govt Officer, and Director

Thanks.

Operator

Subsequent query from the road of Michael Griffin with Citi. Please go forward.

Avery Tiras — Citi — Analyst

Good morning. That is Avery Tiras on for Michael Griffin. My first query is on return to workplace. How do you see return to workplace faring throughout your Solar Belt markets? Are there any market or tenant sorts which can be coming again stronger than others from a utilization perspective?

Ted Klinck — President, Chief Govt Officer, and Director

Hey, Avery. It is Ted. Look, as , the Solar Belt markets have most likely come again faster than a whole lot of bigger gateway markets. I feel not essentially kinds of tenants, actually dimension of tenants.

You realize, our return to the workplace has actually been the smaller clients, suburban clients as properly have been the primary ones again. They have been again for a very very long time. It is bigger corporations, the big public corporations as properly, which were slightly slower when it comes to their return. So, I feel it is extra buyer dimension than has been sort of buyer — sort of business.

Brian Leary — Govt Vice President, Chief Working Officer

Hey, Avery. Brian Leary. To clip on there, the three days of the week, Tuesday, Wednesday, Thursday is totally once we’re seeing our occupancy. So, monetary companies in Charlotte, , the buildings are full.

Prime-level parking storage is getting parked on, and so we’re even seeing the bigger ones have carried out their, , hybrid work week. You realize, three-two is what we hear a whole lot of. So, Tuesday, Wednesday, Thursday is once we’re seeing the vast majority of people in our buildings driving restaurant gross sales, , sundry gross sales, issues like that.

Avery Tiras — Citi — Analyst

Useful. Thanks. My follow-up query is on the exercise backfill. Questioning if you happen to can touch upon what the backfill lease is in 2024 relative to Tivity was paying.

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Hey, Avery, it is Brendan. Yeah, we had a modest roll-up from a money foundation versus the place Tivity was after which a extra — , extra normalized sort of GAAP roll-up within the double-digit vary. So, we discovered that that was — and we have been very happy with that execution provided that Tivity was a build-to-suit executed in 2007, 2008 and had wholesome bumps that compounded over 15 years. So, I feel we have been happy with the execution, from a leasing standpoint, to have the ability to roll that up on a money and GAAP foundation for the brand new buyer.

Avery Tiras — Citi — Analyst

Nice. Thanks for the time.

Operator

Our subsequent query is from the road of Blaine Heck, Wells Fargo. Please go forward.

Blaine Heck — Wells Fargo Securities — Analyst

Nice. Thanks. Good morning. You guys talked in regards to the versatile work choices you guys are offering throughout the portfolio.

Are you able to simply develop slightly bit on that? Are there particular buildings or markets that these suites or versatile areas work greatest in? And the way a lot of your workplace area do you suppose may ultimately be transformed to extra of a versatile use?

Brian Leary — Govt Vice President, Chief Working Officer

Hey, Blaine, Brian Leary. Good morning. Thanks for that query. That is — how a lot time does everybody have? As a result of I am clearly fairly enthusiastic about this.

So, I will be sincere with you, it began with the momentum that we garnered a couple of years in the past with rolling out our spec suite program. And as we began to understand that not all spec suites are the identical, or clients of the identical, or BBDs are the identical, or buildings are the identical, we began to flush out a matrix that may be utilized throughout markets in BBDs to customized tailor, as an example, in Brentwood. We have been very profitable in Nashville rolling out ground by ground of our widespread spec suites the place there is a sure completely different complexion of the consumer that goes in there, what their rents are, and that carries a specific amount of amenity base. The place you have a look at our Buckhead assortment, the kind of buyer that is there’ll have the ability to demand and pay for one thing completely different.

And so, what we’re doing is we’re additionally realizing that people need to collaborate and sort of get out of their very own workplace. It is not even only a potential of going to 110% occupancy, if you’ll. It is simply giving them a range of areas. So, I do not suppose I may offer you an thought of what p.c might be reworked over time.

I feel that is simply now going to be embedded within the choices that we offer. Sure, we have been pretty opportunistic when vacancies introduced itself to do that, and it has been profitable. However we actually see this rolling up as sort of our versatile possibility that you simply get by having a sort of long-term relationship with Highwoods and never essentially have to interact on the extra typical sort of co-working atmosphere.

Blaine Heck — Wells Fargo Securities — Analyst

Nice. Thanks, Brian. That is useful. For my second query, are you able to simply discuss slightly bit extra about your capital wants this yr? I do know, Brendan, you talked about no ATM issuance was included in steering, however ought to we anticipate you to situation any extra debt this yr? And the way ought to we anticipate the leverage to pattern as we progress all through 2023?

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Yeah, Blaine. Good query. So, we do have a whole lot of flexibility throughout the capital stack. So, , as I discussed in my ready remarks, no scheduled debt maturities till actually the top of 2025.

So, we’ve no have to be within the capital markets. Nonetheless, we do have a whole lot of freely prepayable debt that’s excellent. So, the 2 choices there are, one, I imply, we want to have among the noncore disposition proceeds come within the door. As Ted talked about, that is extremely depending on the funding gross sales market when it comes to how a lot proceeds we get within the door there, however that may be used to assist pay down a few of that debt.

After which, I feel we even have choices with respect to longer-term financing to cut back the floating fee publicity that we’ve, and on that, we might be opportunistic. However I do suppose it is most likely cheap to imagine that, sooner or later, it — I’d say it is extra probably than not that we’ll do some type of financing to time period out among the floating fee publicity that we’ve throughout this yr. It is simply we’ll be opportunistic as to when and what type that takes.

Blaine Heck — Wells Fargo Securities — Analyst

Nice. Thanks.

Operator

Subsequent query from the road of Georgi Dinkov with Mizuho. Please go forward.

Georgi Dinkov — Mizuho Securities — Analyst

Hello, thanks for taking my questions. So, may you please stroll us by means of the occupancy trajectory by means of the yr and what will get you thru the low versus the excessive finish of the steering?

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Hey, Georgi, that is Brendan, and I will begin with that. And possibly Ted and Brian will add in some coloration. So, yeah, I imply, as we talked about, we clearly have the headwind from Tivity, the 263,000 sq. ft, that is within the first quarter, in order that’s 100 foundation factors. So, we ended the yr at 91% after which anticipate that quantity to go down in Q1 with Tivity.

And the backfill buyer would not start — will not be scheduled to start till the start of ’24. After which, we’ve another expirations which can be some move-outs that can happen as properly. We had a authorities consumer that was in smooth time period that gave us again a large quantity of sq. footage. So, that is also impacting us.

After which, we’ve some leases which can be queued as much as start into occupancy later within the yr. So, with all of that, that is the place we expect, , once we combine all that stuff collectively, we expect we’ll finish 2023 about 100 foundation factors decrease than the place we ended 2022. However consider, we’ll even have then — as we begin 2024, we could have the backfill buyer for Tivity that will probably be in a large quantity of that area. They do lag into that area over time, however they will take the vast majority of their area at the start of ’24.

Georgi Dinkov — Mizuho Securities — Analyst

OK, nice. And what was the scale of the area that was given again to you?

Ted Klinck — President, Chief Govt Officer, and Director

That is Ted. Actually, we had a pair that Brendan alluded to. One of many authorities clients, they have been — once more, simply to reiterate, they’re in smooth phrases. They’d the power to terminate their lease on fairly quick discover.

I feel it was 90-day discover. However it’s 116,000 sq. ft in Atlanta. After which — and so they gave that again, I feel they vacated mid-January. So, that is one other massive one for majority of the yr.

After which, I will simply point out one different one. These are the one two above Tivity. And the federal government tended above 100,000 ft. We had a — we had about 120,000-square-foot buyer that we went by means of a merger right here in Raleigh, and so they downsized to 46,000 ft.

So, they gave us again early — as a part of the renewal — long-term renewal, they gave us again about 77,000 sq. ft efficient January 1 of ’23. So, that is a success on the occupancy as properly. Now, the nice a part of that story is we have already launched 55,000 of the 75,000 sq. ft and with clients that will probably be beginning, , all through this yr. So, actually, these are the three massive ones.

Georgi Dinkov — Mizuho Securities — Analyst

Nice. That was very useful. Thanks. And simply my final query.

Are you able to discuss in regards to the sublet market? How is that trending in your markets and particularly in your portfolio?

Brian Leary — Govt Vice President, Chief Working Officer

Hey, Georgi, Brian Leary right here to take that query. So, we have sort of talked about this earlier than and we’re very a lot centered on the sublet exercise, the expansion of it, the complexion of it. It appears to be like completely different in sure circumstances. Not all of it’s the similar.

And so, the place we see it rising, Raleigh might be a market with the best quantity of sublet area as a proportion of obtainable area. That is sort of the headline. As you dig into that, you understand that nearly 60% of all of the subleased area in a market like Raleigh is in a single single space referred to as the Analysis Triangle Park, which we haven’t any publicity to and have none in our market. After which, so what — the large factor is who’s leasing, who’s the sublessor, and what are their motivations to write down a test, to maneuver somebody in there, or how a lot time period have they got left? And so, sort of if you happen to look inside our portfolio from a sublet standpoint, the typical wealth of our sublet sources north of six years, if you happen to even take out one consumer who’s acquired, , 14-plus years, it is over 4 years.

So, we really feel fairly good in regards to the visibility and publicity that is throughout the Highwoods portfolio. After which, if you happen to have a look at the final markets, , Nashville’s truly happening and we’re a part of that with people sort of backfilling. Nevertheless it’s on the market. When it will get are — the ratio of obtainable sublet area will get over 25%.

We now have seen that that begins to affect rents, and, , Raleigh’s the place the place that exhibits up. However apart from that, many of the sublet quantity has sort of stayed steady quarter to quarter. It is positively up yr over yr. I imply, nationally and inside our markets, quarter to quarter, we’ve not seen quite a bit transfer.

Georgi Dinkov — Mizuho Securities — Analyst

Nice. Recognize the decision and thanks a lot for the time.

Operator

Subsequent query from the road of Rob Stevenson with Janney. Please go forward.

Rob Stevenson — Janney Montgomery Scott — Analyst

Good morning, guys. Brendan, you guys had north of 135 million of mixed constructing enhancements and second-gen bills in ’22 and simply shy of 120 in 2021. What are you anticipating in ’23 at this level, given Tivity retenanting and different recognized spending?

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Hey, Rob. Yeah, that quantity is — I imply, it is — bounces round quite a bit. What I’d say is I feel the leasing that we did might be — I imply, that is the toughest one to determine. And I’d say that we most likely suppose leasing is more likely to be fairly steady.

Relies upon slightly bit on the amount of leasing and the character of that leasing and issues like that. We dedicated slightly bit extra when it comes to {dollars} to leases in 2022 than what we spent. So, I feel our expectation is these issues most likely normalize and we most likely will probably be fairly regular on the leasing capex. After which, normally, the upkeep capex numbers are pretty regular as properly.

So, I’d guess we — and we — that is what we challenge, that it is going to be fairly constant, ’23 versus ’22, however that could be a arduous quantity to gauge.

Rob Stevenson — Janney Montgomery Scott — Analyst

OK. After which, given Ted’s commentary in regards to the continued dislocation within the acquisition market, are tendencies in ’23 more likely to be back-end loaded? You’ve gotten stuff teed up that might shut within the first half of the yr. How are you guys kind of positioning that at this level?

Ted Klinck — President, Chief Govt Officer, and Director

No, I feel you are useless on. Clearly, we put a fairly big selection of zero to 400 million for our dispo vary. And it is extremely depending on getting again to a stabilized, totally functioning funding gross sales market. And I feel you are beginning to see some inexperienced shoots which can be some encouraging indicators, at the very least for different property sorts.

I feel workplace goes to path that slightly bit. Obtained slightly bit extra headwinds, however we’re beginning to see, , some optimistic issues falling possibly on the debt facet. So, which is sweet. So, yeah, any disposals we do probably going to be back-end loaded.

We have a few buildings and a few land transactions which can be available in the market now that, yeah, I would say, to date, they are going properly. So, we could have a few issues late — , late this quarter or late this primary half of the yr. After which, anything we do will probably be closely weighted towards the again half of the yr.

Rob Stevenson — Janney Montgomery Scott — Analyst

OK. After which, Ted, I imply, any up to date ideas on the Pittsburgh portfolio and the potential sale now? Is that on the desk for now? Is that extra more likely to be a ’24 transaction, or are you continue to considering that which may wind up going to market this yr?

Ted Klinck — President, Chief Govt Officer, and Director

Yeah, look, I feel we will afford to be affected person with Pittsburgh. There is not any actual rush. And once more, till we get a totally functioning, , debt market and totally functioning funding gross sales market, I feel it is most likely placed on maintain. You realize, we have employed the dealer, we’re getting ready it to market, we do need to promote.

However within the meantime, once more, whereas we’re being affected person, we’re seeing some actually good leasing exercise in Pittsburgh. So, we will attempt to reap the benefits of the holes we’ve there and button that up. However so, we’ll wait and see however probably not going to be, , for some time.

Rob Stevenson — Janney Montgomery Scott — Analyst

OK. After which, final one for me. Brian, you have been speaking about utilization earlier than. Have you ever seen any change — an uptick because the starting of the yr with extra corporations having a definitive plan with a date of January 1 coming again? Or has that not been actually noticeable in your markets?

Brian Leary — Govt Vice President, Chief Working Officer

No, I feel it has, Rob. That is an amazing level and query. I feel the large companies, whereas they don’t seem to be essentially making choices about transferring or increasing, , some are placing stuff on the sublet market in the event that they’re contracting, they’ve a plan to get their folks again within the workplace. They’ve their rhythm for the hybrid.

And I feel, , you all have seen quite a lot of leaders, CEOs be fairly definitive on this, , work — the place a work-from-work firm is tough to handle by Hollywood Squares, issues like that. And if you happen to have a look at the — once more, the make-up of our buyer base, if you happen to sort of go forward and seize the small and medium clients, as I discussed, our bread and butter, which makes up an amazing majority, they’ve been again and they’re again. After which, you have a look at the larger customers, the corporates, the publicly traded people within the monetary companies or what have you ever, they’ve their plan. And we completely — we completely have seen it.

I imply, a lot in order we’re engaged on learn how to, , exit the garages quicker, , as a result of now what we have executed is we have been intentionally engaged with our clients. How can we sort of assist them — , the Jerry Maguire scene, assist me assist you to, how can we assist them with their return-to-work coverage? As a result of they’re dedicated that they are higher collectively, and so they need to see their productiveness enhance. Their productiveness will increase once they’re within the constructing. So, that is sort of what we’re doing.

We now have sort of a marketing campaign the place we’re actually partnering with them, particularly on recruiting and bringing their teammates again to the workplace.

Rob Stevenson — Janney Montgomery Scott — Analyst

And the place is utilization midweek for you throughout the portfolio as of late?

Brian Leary — Govt Vice President, Chief Working Officer

The place has it been per week? I imply, I — , I feel these locations which have the — you’ve got heard the time period commute worthiness that we discuss, and so, these locations which may have the upper commute burden to beat, proper? So, attention-grabbing sufficient, whereas, , it considers itself the guts of the Solar Belt, , Atlanta due to its higher commute instances and distances might be, , trailing the likes of Nashville’s. Pittsburgh, for positive is, , a extra conventional hub-and-spoke sort of commute mannequin. However I’d say simply — , simply Atlanta, to some extent, , has sort of plateaued, , between 50% and 75%. Once more, Monday — Tuesday, Wednesday, Thursday, we have completely observed that — we glance the restaurant gross sales, the deli gross sales, the cafes, they are much busier, , again to sort of pre-pandemic ranges when it comes to that exercise.

Rob Stevenson — Janney Montgomery Scott — Analyst

OK. Thanks, guys. Recognize the time.

Operator

Subsequent query from the road of Dave Rodgers with Baird. Please go forward.

Dave Rodgers — Baird — Analyst

Yeah. Good morning, everyone. Brian, I wished to speak about lease slightly bit. And also you talked about financial or efficient lease earlier.

Perhaps they don’t seem to be the place you’d love them to be, however they have not been horrible. However your common deal dimension has been about 10,000 sq. ft. So, as you roll ahead, is there any good proof that you’ve got now or that you simply’re beginning to have negotiations on these greater deal, say, , 50 to 100 or north of 100,000 sq. ft are getting executed the place you are seeing a considerably higher quantity of strain on rents or efficient rents? It simply looks as if that comp may begin to come out and possibly shock us, however I would like to know what you are seeing on that entrance.

Brian Leary — Govt Vice President, Chief Working Officer

They have not actually seen that but. You realize — and I do know it most likely simply feels like I am simply speaking my e book, however, I imply, the — our clients, even the larger ones, are, to an individual, telling us that they need to get their folks again, and so they see the office expertise as a part of that. So, proper now, the rents are holding up, . The free lease is totally there.

I feel they’d prefer to finance their TI to increased rents. Once more, not to return, like, two years, and those that’ve been listening to me for some time, I feel I sound like — slightly bit like a damaged document, however a whole lot of these organizations, whereas they’re price centered for positive, , 1% of what they spend yearly is on utilities, 9% is on actual property, 90% is on folks. They usually’re fairly centered on that 90%. And so, it clearly does have a connection to the 9%.

And so, , nothing but to attach these days. Sorry for the lengthy reply for a reasonably quick sure or no. Ted, possibly your thought?

Ted Klinck — President, Chief Govt Officer, and Director

Yeah. The one factor I would add is, , Landmark, we did that third quarter of final yr, , over 200,000 sq. ft, and the lease was, , fairly excessive on that area as properly. It has been attention-grabbing, simply our portfolio and it kind of goes with the query, final yr, we solely did 9 leases higher than 50,000 sq. ft, which I believed was an attention-grabbing stat. It is simply a whole lot of the small and medium-sized customers, which once more performs proper to our portfolio.

Brian Leary — Govt Vice President, Chief Working Officer

And that is out of 425 offers, proper? So, I feel it provides you an thought.

Dave Rodgers — Baird — Analyst

After which, among the bigger offers — , you could have talked in regards to the backfill exercise or the deal that you simply did in Richmond. The bigger transactions seemingly have centered on suburban markets. Is that not sufficient knowledge to make that conclusion or leap? Or are you seeing that positively taking place the place the bigger tenants aren’t gravitating to Buckhead however possibly are gravitating towards Riverwood or one thing comparable throughout your markets?

Ted Klinck — President, Chief Govt Officer, and Director

I do not suppose there’s actually been, , any sufficient knowledge factors to know. I imply, half a few of it’s, , on renewals, proper, you’ll be able to solely renew those you could have and that is the place the holes you could have as properly in your portfolio. So, clearly, Tivity, we had a gap, so we’re capable of go aggressively attempt to backfill it, after which among the different ones. So, it kind of simply relies upon, however I’ll say a blanket assertion.

I feel we have mentioned this earlier than that, through the pandemic, we’ve seen a disproportion of leasing out within the suburbs versus city. However I do not suppose there’s sufficient knowledge factors to say there’s any pattern come what may.

Brian Leary — Govt Vice President, Chief Working Officer

I feel it is — simply to clip on, and that is, , a long time within the making. You realize, the place folks reside is the place they prefer to work. And so, there’s an amazing, continued migration of homeownership and homebuying by the millennials to the suburbs. And so, I feel that the idea it is not — commodity suburbs will not be one thing that we expect, simply because it is within the suburbs, is aggressive by any stretch.

And so, if you consider what we have talked about, the repositioning of our belongings in Brentwood and Cool Springs, Cool Springs, which mentioned repositioning landed the backfill of that constructing, it is about amenitizing, walkable, mixed-use, a spot to get a cup of espresso, a spot to stroll and seize lunch, a spot to exercise exterior and inside a health heart, and have collaborative workspace. So, it is — you simply cannot drop it down someplace within the suburbs and even on the town and anticipate that to resolve your issues, however that is what we have seen.

Dave Rodgers — Baird — Analyst

Thanks for that. After which final for me. On the tendencies, Ted, you talked about in your remark possibly some land and possibly not Pittsburgh is sort of a full exit this yr. So, what do you anticipate with the ability to promote this yr? And I assume possibly the purpose of the query actually is, if you happen to’re promoting 400 million, how dilutive is that relative to the debt prices, , as you consider late ’23 into 2024?

Ted Klinck — President, Chief Govt Officer, and Director

Certain. I will take possibly the primary half and Brendan can leap in. So, , the combination of belongings, it is a few land offers after which we have got a few single-tenant transactions available in the market. However it will be a mixture of usually what we have executed the final two or three, , giant transactions the place we exit and promote, exit and purchase an asset like we did in McKinney & Olive, flex up slightly bit, after which repay, deliver the stability sheet again down over time.

So, it will be a mixture of single tenant, some land, some multitenant belongings, once more, belongings that possibly have a decrease development profile going ahead. So, it is not not like different stuff we have seen. Pittsburgh, , it might be in there. We’ll see.

However it’s a giant transaction, and bigger offers are more durable to get executed as of late. Now, when it comes to dilution, Brendan, you need to take that?

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Certain. Dave, so what I’d say is, I imply, I feel the marginal price of borrowing on what we might repay, if you happen to have a look at our forecast for 2023, you are most likely within the mid to sort of higher fives. So, you’ll be able to sort of apply the cap charges that you simply suppose versus these numbers. What I’d say is, from a money stream perspective, which is the place we’ve centered, clearly, , there’s capex related to — ongoing capex related to the belongings that we plan to promote.

Once we pay down the debt, all of that, , curiosity financial savings falls to the underside line. There is not any capex related to that, clearly. So, from a money stream perspective, it is a lot much less dilutive. After which, once we staple on to that the event deliveries that come on-line, that is the place we do suppose, , over time, our money flows will proceed to get higher even with the deliberate tendencies that we’ve.

Dave Rodgers — Baird — Analyst

All proper, nice. Thanks.

Operator

Our subsequent query comes from the road of Dylan Burzinski with Inexperienced Avenue. Please go forward.

Dylan Burzinski — Inexperienced Avenue Advisors — Analyst

Hello, guys. Thanks for taking the query. Simply curious kind of if you happen to can sort of contact on the event leasing pipeline and the place it stands right now.

Ted Klinck — President, Chief Govt Officer, and Director

Certain. Dylan. Good morning. Yeah, let me simply stroll — possibly stroll by means of every of them, , and possibly I will begin so as of once they ship.

So, 2827 Peachtree, only a reminder, that is now topped out, delivers third quarter of this yr. So, it is come collectively properly. And we do have a stabilization date of first quarter ’25 and that — on the finish of the yr, we’re 75% leased and we have got a pair that is a really sturdy prospects to get us someplace within the mid-80s previous to supply. So, we be ok with that one.

GlenLake Three right here in Raleigh additionally delivers third quarter of this yr, stabilization is first quarter ’25. We did — if you happen to bear in mind, we began that one 15% pre-leased. We now have not signed anybody else all through to date. However I’ll say within the final, name it, even 60 days late final yr, rolling into this yr, exercise prospect — as we have topped off the constructing, now you can see the shell of the retail that we’re including as an amenity come collectively that our exercise has picked up fairly good.

So, we’re inspired by that. The third one which delivers this yr is the Granite Park 6. That is, as a reminder, within the Plano-Frisco submarkets, 50-50 three way partnership with Granite Properties, an area sharpshooter that we’re thrilled to be companions with. That delivers within the fourth quarter, so kind of towards the top of the yr, 12% pre-leased, and that one’s been attention-grabbing in that, , I would say, mid-last yr, the exercise was simply off the charts.

Quite a lot of bigger customers we have been chasing and we’re transferring down, , making progress with or some kind of progress. And unexpectedly, late final yr or the third quarter, the large customers, like we have all heard, they kind of simply press the pause button. So, there’s nonetheless smaller exercise, however once more, extremely well-located constructing, and we’re inspired by — once more, by what’s — how the constructing’s coming collectively. And the opposite two are 23Springs, additionally with Granite.

That does not get accomplished until first quarter ’25, stabilizes in 2028. And exercise has been very, very sturdy there although the supply is a few years out, so we really feel nice about that. After which the fifth one, simply Midtown East. Clearly, we’re simply — we put the silt fence round it, and we’ll be breaking floor within the subsequent week or two.

With that one, would not ship till 2025. And we have truly had — since we have had the fence go up, we have had some inquiries on that, which I did not actually anticipate. Tampa is de facto not a pre-leased market, so we’ll see. These are very early and have not even responded to among the RFPs, however we’re getting some exercise there.

So, once more, we really feel good. Obtained a few years till we get that one executed. Does that reply your query?

Dylan Burzinski — Inexperienced Avenue Advisors — Analyst

Yeah, that was excellent. Recognize the colour on that. And I assume simply you talked about Granite Park. The follow-up on Granite Park 6, have you ever guys underwritten — or underwriting expectations modified, given kind of the drop-off in leasing exercise, or simply sort of how ought to we be serious about that?

Ted Klinck — President, Chief Govt Officer, and Director

Under no circumstances. Under no circumstances. I feel we really feel superb in regards to the underwriting. Once more, we do not stabilize that one until, I feel, first quarter ’26.

So, once more, we acquired loads of time. There is not any rush right here. We did not have a whole lot of pre-leasing coming in earlier than the constructing was executed. So, we — , we expect we have been fairly conservative.

The proposals we’re placing out are properly in keeping with our underwriting, and so we nonetheless really feel superb about it.

Dylan Burzinski — Inexperienced Avenue Advisors — Analyst

Thanks.

Ted Klinck — President, Chief Govt Officer, and Director

Thanks.

Operator

Subsequent query from the road of Peter Abramowitz with Jefferies. Please go forward.

Peter Abramowitz — Jefferies — Analyst

Sure. Thanks. I simply need to ask, what’s sort of constructed into your steering when it comes to the mark-to-market that you simply’re anticipating for the yr?

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Hey, Peter, it is Brendan. I’d say, I imply, it is on a money foundation. We have been, , roughly sort of round flat for the pad, and actually virtually because the onset of COVID. So, that is most likely a very good marker.

And within the low double digits on a GAAP foundation, these are most likely good markers. Once more, slightly bit tough to forecast simply given, , the combination of expirations and new lease signings and issues like that. However I feel if you happen to use these guideposts, that most likely will get you to sort of the place — that most likely should be in keeping with what we have got included in our outlook.

Peter Abramowitz — Jefferies — Analyst

OK. Obtained it. After which, I assume a barely completely different manner of asking one thing that was requested earlier, however a whole lot of you coastal opponents have talked a few pickup in exercise fairly meaningfully because the new yr. Are you seeing any indicators of that in your markets and — or usually sort of any indicators of an inflection when it comes to enterprise confidence and enterprise leaders being extra prepared to make choices? Or is it nonetheless sort of the identical that they have been for the previous yr or so?

Brian Leary — Govt Vice President, Chief Working Officer

Hey, Peter. Brian right here. So, a few issues to that sort of comparability. Our markets are submarkets, our BBDs are buildings.

We’re already forward of that curve. So, that is sort of the very first thing. However so, once more, our smaller and medium dimension, and significantly, suburban, have been first again, then they got here again sort of throughout the board. Now, the beginning of this yr, I do suppose the larger corporates, those that you’ve got examine, their CEOs saying that they need to get their people again, we’ve completely seen that now.

You realize, what — the good factor, I feel, and we hope that that is the case, the problems across the pandemic, which nonetheless have been hovering a yr in the past, simply as a possible lag, these actually sort of abated when it comes to the explanation why people will not be coming again. So, I feel that is a very good factor. Hopefully, that is within the rearview mirror, . However we’ve been pretty constant, , forward of the curve.

That curve’s continued to go up. You realize, peak occupancy is Tuesday, Wednesday, Thursday, for positive. Fridays are quiet. You are seeing extra on Mondays than you probably did on the finish of final yr.

However I do imagine that, to an organization, there’s a plan now that people are again within the workplace three days per week.

Peter Abramowitz — Jefferies — Analyst

All proper. That is it for me. Thanks.

Operator

We now have a follow-up from Camille Bonnel, Financial institution of America. Please go forward.

Camille Bonnel — Financial institution of America Merrill Lynch — Analyst

Hello. Simply have one follow-up. Given the large debate on whether or not the weak point of CBD city workplace is short-term or not, are you able to remind us of the breakdown of the city versus suburban in your portfolio? And inside that, are you seeing any clear distinction between the working efficiency between the 2, whether or not it’s leasing exercise, occupancy, or rents?

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Hey, Camille, it is Brendan. So, yeah, I imply, I’d say — I imply, from a CBD — we sort of classify it in three alternative ways, so CBD, infill, and suburban. So, suburban — they don’t seem to be fairly evenly distributed. You might need slightly bit — possibly suburban is a few quarter, infill is, — after which evenly cut up between infill and CBD.

So, that is sort of the portfolio breakdown when it comes to — , possibly when it comes to efficiency, I will let that over to Brian or Ted to reply that.

Brian Leary — Govt Vice President, Chief Working Officer

Camille, simply an add-on, our CBDs are essentially completely different from a CBD of the gateways. So, our clients and their teammates, who’re commuting to our CBDs on the entire, will not be spending an hour on the practice every manner. So, our CBDs have a special sort of complexion. I hold utilizing that time period.

Now, as I discussed earlier, these areas that do look extra like a gateway when it comes to longer commutes and sort of that hub and spoke from the burbs after which again out once more, they’re wanting extra like sort of the coastal gateways when it comes to the return. However to Brendan’s level, the CBD infill and suburban sort of nature of how we get away our markets infill, that is mainly a Buckhead in Atlanta, if that. It has a stable residential base with unbelievable incomes and academic attainment, then what occurred is that they added the retailers and eating places for that high-net-worth inhabitants to service. After which, as a result of they already reside there and so they performed there, they wished to work there.

And so, that is Buckhead; that is SouthPark, Charlotte; that is, , North Hills right here in Raleigh. So, that could be a little little bit of a nuance between the CBD throughout the Highwood Solar Belt portfolio and a CBD analog to the gateways of the coastals.

Camille Bonnel — Financial institution of America Merrill Lynch — Analyst

Thanks.

Brian Leary — Govt Vice President, Chief Working Officer

Thanks.

Operator

We now have no additional questions on the telephone line.

Ted Klinck — President, Chief Govt Officer, and Director

Nicely, thanks, everyone, for becoming a member of the decision right now. We recognize your curiosity in Highwoods, and we stay up for speaking to you once more quickly. Thanks.

Operator

[Operator signoff]

Length: 0 minutes

Name contributors:

Hannah True — Investor Relations

Ted Klinck — President, Chief Govt Officer, and Director

Brian Leary — Govt Vice President, Chief Working Officer

Brendan Maiorana — Govt Vice President, Chief Monetary Officer

Camille Bonnel — Financial institution of America Merrill Lynch — Analyst

Avery Tiras — Citi — Analyst

Blaine Heck — Wells Fargo Securities — Analyst

Georgi Dinkov — Mizuho Securities — Analyst

Rob Stevenson — Janney Montgomery Scott — Analyst

Dave Rodgers — Baird — Analyst

Dylan Burzinski — Inexperienced Avenue Advisors — Analyst

Peter Abramowitz — Jefferies — Analyst

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