What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-07 compared with 2022-02-08 · 138 added, 153 removed, 318 unchanged (48% of the section changed)

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When considering such forward-looking statements, you should keep in mind important factors that could cause our actual results to differ materially from those contained in any forward-looking statement, including the following:

• buyers may not be available and pricing may not be adequate with respect to planned dispositions of non-core assets;

• comparable sales data on which we based our expectations with respect to the sales price of non-core assets may not reflect current market trends;

• the extent to which the ongoing COVID-19 pandemic impacts our financial condition, results of operations and cash flows depends on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic and its impact on the U.S.

economy and potential changes in customer behavior that could adversely affect the use of and demand for office space;

• the financial condition of our customers could deteriorate or further worsen, which could be further exacerbated by the COVID-19 pandemic;

• our assumptions regarding potential losses related to customer financial difficulties due to the COVID-19 pandemic could prove incorrect;

• the financial condition of our customers could deteriorate;

• our assumptions regarding potential losses related to customer financial difficulties could prove incorrect;

• counterparties under our debt instruments, particularly our revolving credit facility, may attempt to avoid their obligations thereunder, which, if successful, would reduce our available liquidity;

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We believe that in creating environments and experiences where the best and brightest can achieve together what they cannot apart, we can deliver greater value to our customers, their teammates and, in turn, our stockholders.

Our simple strategy is to own and manage high-quality workplaces in the BBDs within our footprint, maintain a strong balance sheet to be opportunistic throughout economic cycles, employ a talented and dedicated team and communicate transparently with all stakeholders.

Our simple strategy is to own and operate high-quality workplaces in the BBDs within our footprint, maintain a strong balance sheet to be opportunistic throughout economic cycles, employ a talented and dedicated team and

communicate transparently with all stakeholders.

We focus on owning and managing buildings in the most dynamic and vibrant BBDs.

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A core component of this strategy is to continuously strengthen the financial and operational performance, resiliency and long-term growth prospects of our existing in-service portfolio and recycle those properties that no longer meet our criteria.

Since the beginning of 2019, we have acquired 3.1 million square feet of trophy office assets for a total investment of $1.3 billion, placed in service 1.8 million square feet of highly pre-leased new office development for a total investment of $691 million and sold 6.7 million square feet of non-core office and industrial assets for $992 million.

This series of transactions included our exit from Greensboro and Memphis and entry into Charlotte, a higher-growth market with greater future upside opportunities.

Our operating results depend heavily on successfully leasing and operating the office space in our portfolio.

Economic growth and office employment levels in our core markets are important factors, among others, in predicting our future operating results.

Since March 2020, the COVID-19 pandemic has also had a significant impact on the U.S.

It is very difficult to predict when, if and to what extent economic activity will return to pre-COVID-19 levels.

The COVID-19 pandemic did impact our 2021 financial results.

While all buildings and parking facilities have remained open for business, the usage of our assets has continued to remain significantly lower than pre-pandemic levels.

As a result, compared to pre-pandemic levels, parking and parking-related revenues have continued to be low, largely offsetting reduced operating expenses, net of expense recoveries.

Until usage increases, which will depend on the duration of the COVID-19 pandemic, which is difficult to estimate, we expect that reduced usage will continue to result in reduced parking revenues, which will be partially offset by reduced operating expenses.

We currently expect usage will gradually increase throughout 2022.

Factors that could cause actual results to differ materially from our current expectations are set forth under “Disclosure Regarding Forward-Looking Statements.”

The key components affecting our rental and other revenues are average occupancy, rental rates, cost recovery income, new developments placed in service, acquisitions and dispositions.

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For more information regarding our lease expirations, see “Item 2.

Properties - Lease Expirations.” Occupancy in our office portfolio increased from 90.3% at December 31, 2020 to 91.2% at December 31, 2021.

Properties - Lease Expirations.” See also “Item 1A.

Risk Factors – Risks Related to our Operations – Potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, could materially and negatively impact the future demand for office space over the long-term.”

Occupancy in our office portfolio decreased from 91.2% as of December 31, 2021 to 91.0% as of December 31, 2022.

We expect average occupancy for our office portfolio to be approximately 89.0% to 90.0% for 2023.

However, average occupancy in 2022 will be lower, perhaps significantly lower, if the COVID-19 pandemic causes vacancies and move-outs due to potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, which could materially and negatively impact the future demand for office space, resulting in slower overall leasing and negatively impacting our revenues.

Whether or not our rental revenue tracks average occupancy proportionally depends upon whether GAAP rents under signed new and renewal leases are higher or lower than the GAAP rents under expiring leases.

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We have an internal guideline whereby customers that account for more than 3% of our revenues are periodically reviewed with the Company's Board of Directors.

As of December 31, 2021, the Federal Government (4.0%) and Bank of America (3.7%) accounted for more than 3% of our annualized cash revenues.

December 31, 2022, only Bank of America (3.8%) and Asurion (3.6%) accounted for more than 3% of our annualized GAAP revenues.

Properties - Customers.”

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Same property NOI was $4.0 million, or 0.9%, higher in 2022 as compared to 2021 due to an increase of $21.8 million in same property revenues offset by an increase of $17.8 million in same property expenses.

We expect same property NOI to be lower in 2022 as compared to 2021 as an anticipated increase in same property expenses, mostly from the anticipated gradual increase in usage of our assets, is expected to more than offset higher anticipated same property revenues.

We expect same property revenues to be higher due to higher average GAAP rents per rentable square foot and higher cost recovery and parking income.

We expect same property NOI to be lower in 2023 as compared to 2022 as an anticipated increase in same property expenses is expected to more than offset higher anticipated same property revenues.

We expect same property revenues to be higher due to higher average GAAP rents per rentable square foot and higher cost recovery and parking income, partially offset by an anticipated decrease in average occupancy.

In addition to the effect of same property NOI, whether or not NOI increases typically depends upon whether the NOI from our acquired properties and development properties placed in service exceeds the NOI from property dispositions.

NOI was $26.5 million, or 5.2%, higher in 2021 as compared to 2020 primarily due to the acquisitions of real estate assets from Preferred Apartment Communities, Inc.

(“PAC”) in the third quarter of 2021 and our joint venture partner’s 75.0% interest in our Highwoods DLF Forum, LLC joint venture (the “Forum”) in the first quarter of 2021, development properties placed in service and higher same property NOI, partially offset by NOI lost from property dispositions.

We expect NOI to be higher in 2022 as

compared to 2021 due to the acquisition of real estate assets from PAC and development properties placed in service, partially offset by NOI lost from property dispositions and lower same property NOI.

NOI was $37.6 million, or 7.1%, higher in 2022 as compared to 2021 primarily due to development properties placed in service, the acquisition of real estate assets from Preferred Apartment Communities, Inc.

(“PAC”) in the third quarter of 2021, the acquisition of SIX50 at Legacy Union in the third quarter of 2022 and higher same property NOI, partially offset by NOI lost from property dispositions.

We expect 2023 NOI to be similar to 2022 as increases from development properties placed in service and the acquisition of SIX50 at Legacy Union are expected to be offset by NOI lost from property dispositions and an anticipated decrease in same property NOI.

In calculating net cash related to operating activities, depreciation and amortization, which are non-cash expenses, are added back to net income.

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We continue to maintain a conservative and flexible balance sheet and believe we have ample liquidity to fund our operations and growth prospects.

As of January 28, 2022, we had approximately $22 million of existing cash and $70.0 million drawn on our $750 million revolving credit facility, which is scheduled to mature in March 2025.

Assuming we are in compliance with our covenants, we have an option to extend the maturity for two additional six-month periods.

At December 31, 2021, our leverage ratio, as measured by the ratio of our mortgages and notes payable and outstanding preferred stock to the undepreciated book value of our assets, was 39.4% and there were 107.4 million diluted shares of Common Stock outstanding.

As of January 27, 2023, we had approximately $25 million of existing cash and $392.0 million drawn on our $750 million revolving credit facility, which is scheduled to mature in March 2026, assuming we exercise our option to extend the maturity date for two additional six-month periods.

As of December 31, 2022, our leverage ratio, as measured by the ratio of our mortgages and notes payable and outstanding preferred stock to the undepreciated book value of our assets, was 42.0% and there were 107.6 million diluted shares of Common Stock outstanding.

Rental and other revenues are our principal source of funds to meet our short-term liquidity requirements.

Other sources of funds for short-term liquidity needs include available working capital and borrowings under our revolving credit facility, which had $679.9 million of availability at January 28, 2022.

Other sources of funds for short-term liquidity needs include available working capital and borrowings under our revolving credit facility, which had $357.9 million of availability as of January 27, 2023.

Our short-term liquidity requirements primarily consist of operating expenses, interest and principal amortization on our debt, distributions and capital expenditures, including building improvement costs, tenant improvement costs and lease commissions.

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We generally believe existing cash and rental and other revenues will continue to be sufficient to fund short-term liquidity needs such as funding operating and general and administrative expenses, paying interest expense, maintaining our existing quarterly dividend and funding existing portfolio capital expenditures, including building improvement costs, tenant improvement costs and lease commissions.

Our long-term liquidity uses generally consist of the retirement or refinancing of debt upon maturity, funding of building improvements, new building developments and land infrastructure projects and funding acquisitions of buildings and development land.

Our expected future capital expenditures for started and/or committed new consolidated and unconsolidated development projects were approximately $176 million at December 31, 2021.

Additionally, we may, from time to time, retire

outstanding equity and/or debt securities through redemptions, open market repurchases, privately negotiated acquisitions or otherwise.

Our long-term liquidity uses generally consist of the retirement or refinancing of debt upon maturity, funding of building improvements, new building developments (including our proportionate share of joint venture developments) and land infrastructure projects and funding acquisitions of buildings and development land.

Additionally, we may, from time to time, retire outstanding equity and/or debt securities through redemptions, open market repurchases, privately negotiated acquisitions or otherwise.

We expect to meet our long-term liquidity needs through a combination of:

• cash flow from operating activities;

• bank term loans and borrowings under our revolving credit facility;

• the issuance of unsecured debt;

• the issuance of secured debt;

• the issuance of equity securities by the Company or the Operating Partnership;

• cash flows from operating activities;

• issuance of debt securities by the Operating Partnership;

• issuance of secured debt;

• bank term loans;

• borrowings under our revolving credit facility;

• issuance of equity securities by the Company or the Operating Partnership;

• the disposition of non-core assets.

We have no debt scheduled to mature during 2022, except for our $200.0 million unsecured bank term loan that is scheduled to mature in November 2022.

During 2022, we forecast funding approximately $93 million of our $283 million consolidated and unconsolidated development pipeline, which was over 37% funded as of December 31, 2021.

We have no debt scheduled to mature prior to 2026 other than our recently obtained $200.0 million, two-year unsecured bank term loan that is scheduled to mature in October 2025, assuming we exercise our option to extend the maturity date for one additional year.

We generally believe we will be able to satisfy these obligations with existing cash, borrowings under our revolving credit facility, new bank term loans, issuance of other unsecured debt, mortgage debt and/or proceeds from the sale of additional non-core assets.

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We generally seek to acquire and develop office buildings that improve the average quality of our overall portfolio and deliver consistent and sustainable value for our stockholders over the long-term.

Whether or not an asset acquisition or new development results in higher per share net income or funds from operations (“FFO”) in any given period depends upon a number of factors, including whether the NOI for any such period exceeds the actual cost of capital used to finance the acquisition or development.

Additionally, given the length of construction cycles, development projects are not placed in service until, in some cases, several years after commencement.

not an asset acquisition or new development results in higher per share net income or funds from operations (“FFO”) in any given period depends upon a number of factors, including whether the NOI for any such period exceeds the actual cost of capital used to finance the acquisition or development.

Additionally, given the length of construction cycles, development projects are not placed in service until several years after commencement in some cases.

Sales of non-core assets could result in lower per share net income or FFO in any given period in the event the return on the resulting use of proceeds does not exceed the capitalization rate on the sold properties.

During the third quarter of 2022, we entered the Dallas market through the formation of two joint ventures with Granite Properties (“Granite”) to develop Granite Park Six, a multi-customer office development comprising 422,000 square feet in the vibrant Frisco/Plano BBD, and 23Springs, a mixed-use development encompassing 626,000 square feet of multi-customer office and 16,000 square feet of retail in the heart of the dynamic Uptown Dallas BBD.

We own a 50% interest in each of the joint ventures.

Properties – In-Process Development.” During the fourth quarter of 2022, we expanded our Dallas market presence by acquiring McKinney & Olive, a 542,000 square foot trophy mixed-use asset in Uptown Dallas, through the formation of another joint venture with Granite in which we own a 50.0% interest.

See “Liquidity and Capital Resources – Investment Activity.”

We plan to fund our entry into the Dallas market over the long-term by exiting the Pittsburgh market.

Our Pittsburgh assets, which consist of 2,155,000 square feet of office that was 90.9% occupied as of December 31, 2022, represent approximately 6% of our overall net operating income.

We can provide no assurances, however, that we will dispose of any of our assets in Pittsburgh on favorable terms, or at all, because the dispositions are subject to the negotiation and execution of definitive and binding purchase and sale agreements and would then be subject to the buyers’ completion of satisfactory due diligence and other customary closing conditions.

There is no pre-determined timetable for our Pittsburgh market exit.

Results of Operations

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Rental and Other Revenues

Rental and other revenues were $31.1 million, or 4.2%, higher in 2021 as compared to 2020 primarily due to the acquisitions of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum, development properties placed in service and higher same property revenues, which increased rental and other revenues by $43.0 million, $13.2 million and $6.4 million, respectively.

Same property rental and other revenues were higher primarily due to higher average GAAP rents per rentable square foot, higher parking income and lower credit losses, partially offset by a decrease in average occupancy.

Rental and other revenues were $60.9 million, or 7.9%, higher in 2022 as compared to 2021 primarily due to the acquisitions of real estate assets from PAC and SIX50 at Legacy Union, development properties placed in service and higher same property revenues, which increased rental and other revenues by $42.8 million, $25.8 million and $21.8 million, respectively.

Same property rental and other revenues were higher primarily due to higher average GAAP rents per rentable square foot, higher average occupancy and higher cost recoveries, parking income and termination fees, partially offset by higher credit losses.

These increases were partially offset by lost revenue of $31.3 million from property dispositions.

We expect rental and other revenues to be higher in 2022 as compared to 2021 due to the acquisition of real estate assets from PAC, development properties placed in service and higher same property revenues, partially offset by lost revenue from property dispositions.

We expect rental and other revenues to be higher in 2023 as compared to 2022 due to the acquisition of SIX50 at Legacy Union, higher same property revenues and development properties placed in service, partially offset by lost revenue from property dispositions.

Operating Expenses

Rental property and other expenses were $4.6 million, or 2.0%, higher in 2021 as compared to 2020 primarily due to the acquisitions of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum, development properties placed in service and higher same property operating expenses, which increased operating expenses by $11.4 million, $2.5 million and $1.0 million, respectively.

Same property operating expenses were higher primarily due to higher contract services and utilities, partially offset by lower repairs and maintenance.

Rental property and other expenses were $23.4 million, or 9.9%, higher in 2022 as compared to 2021 primarily due to higher same property operating expenses, the acquisitions of real estate assets from PAC and SIX50 at Legacy Union and development properties placed in service, which increased operating expenses by $17.8 million, $11.7 million and $3.9 million, respectively.

Same property operating expenses were higher primarily due to higher contract services, utilities, property taxes, property insurance and repairs and maintenance.

These increases were partially offset by a $11.3 million decrease in operating expenses from property dispositions.

We expect rental property and other expenses to be higher in 2022 as compared to 2021 due to the acquisition of real estate assets from PAC, development properties placed in service and higher

same property operating expenses due to the anticipated gradual increase in usage throughout 2022, partially offset by lower operating expenses from property dispositions.

Depreciation and amortization was $17.7 million, or 7.3%, higher in 2021 as compared to 2020 primarily due to the acquisitions of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum, development properties placed in service and higher same property lease related depreciation and amortization, partially offset by fully amortized acquisition-related intangible assets and property dispositions.

We expect depreciation and amortization to be higher in 2022 as compared to 2021 due to the acquisition of real estate assets from PAC and development properties placed in service, partially offset by property dispositions.

We recorded an impairment of real estate assets of $1.8 million in 2020, which resulted from a change in market-based inputs and our assumptions about the use of the assets.

We recorded no impairments in 2021.

General and administrative expenses were $0.5 million, or 1.2%, lower in 2021 as compared to 2020 primarily due to lower salaries, benefits, severance and early retirement costs, partially offset by higher incentive compensation.

We experienced lower salaries and benefits in 2021 as a result of the reduction in the number of employees throughout 2020 primarily due to our exiting of the Greensboro and Memphis markets and the subsequent closing of those division offices and the resulting synergies garnered from the ongoing simplification of our business.

We expect general and administrative expenses to be higher in 2022 as compared to 2021 due to higher salaries and benefits and higher office rent, partially offset by lower incentive compensation.

We expect rental property and other expenses to be higher in 2023 as compared to 2022 due to higher same property operating expenses, the acquisition of SIX50 at Legacy Union and development properties placed in service, partially offset by lower operating expenses from property dispositions.

Depreciation and amortization was $28.4 million, or 10.9%, higher in 2022 as compared to 2021 primarily due to the acquisitions of real estate assets from PAC and SIX50 at Legacy Union, development properties placed in service and higher same property lease related depreciation and amortization, partially offset by fully amortized acquisition-related intangible assets and property dispositions.

We expect depreciation and amortization to be higher in 2023 as compared to 2022 due to the acquisition of SIX50 at Legacy Union, higher same property lease related depreciation and amortization and development properties placed in service, partially offset by property dispositions.

We recorded impairment charges of $36.5 million in 2022 to lower the carrying amounts of EQT Plaza and a land parcel to their estimated fair value less costs to sell.

EQT Plaza is a 616,000 square foot office building located in the heart of

Pittsburgh’s CBD.

EQT Corporation’s lease of 317,000 square feet at EQT Plaza is scheduled to expire in September 2024.

There are no assurances that EQT Corporation will renew all or any of its space upon expiration of its current lease.

We recorded no such impairment in 2021.

General and administrative expenses were $1.7 million, or 4.2%, higher in 2022 as compared to 2021 primarily due to higher salaries, benefits and office rent, partially offset by lower incentive compensation.

We expect general and administrative expenses to be lower in 2023 as compared to 2022 due to lower incentive compensation and office rent, partially offset by higher salaries and benefits.

Interest Expense

Interest expense was $4.9 million, or 6.0%, higher in 2021 as compared to 2020 primarily due to higher average debt balances, partially offset by higher capitalized interest and lower average interest rates.

We expect interest expense to be higher in 2022 as compared to 2021 due to higher average debt balances and lower capitalized interest.

Other Income/(Loss)

Other income/(loss) was income of $1.4 million in 2021 as compared to a loss of $1.7 million in 2020 primarily due to losses on debt extinguishment in 2020.

Interest expense was $19.5 million, or 22.8%, higher in 2022 as compared to 2021 primarily due to higher average debt balances, higher average interest rates and lower capitalized interest.

We expect interest expense to be higher in 2023 as compared to 2022 due to higher average interest rates and higher average debt balances, partially offset by higher capitalized interest.

Other income was $0.1 million higher in 2022 as compared to 2021 primarily due to higher dividend and interest income and losses on debt extinguishment in 2021, partially offset by losses on deferred compensation plan investments (which is fully offset by a corresponding decrease in general and administrative expenses).

Gains on Disposition of Property

Gains on disposition of property were $41.8 million lower in 2021 as compared to 2020 due to the net effect of the disposition activity in such periods.

Gains on disposition of property were $110.5 million lower in 2022 as compared to 2021.

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates was $2.1 million, or 51.4%, lower in 2021 as compared to 2020 primarily due to the acquisition of our joint venture partner’s 75.0% interest in the Forum.

Equity in earnings of unconsolidated affiliates was $0.4 million lower in 2022 as compared to 2021 primarily due to the acquisition of our joint venture partner’s 75.0% interest in our Highwoods DLF Forum, LLC joint venture (the “Forum”) in the first quarter of 2021 and higher property taxes.

Earnings Per Common Share - Diluted

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Comparison of 2022 to 2021

The change in net cash provided by operating activities in 2021 as compared to 2020 was primarily due to higher net cash from the operations of acquired real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum, same properties and development properties placed in service and changes in operating assets, partially offset by property dispositions.

We expect net cash related to operating activities to be higher in 2022 as compared to 2021 due to higher net cash from the operations of acquired real estate assets from PAC and development properties placed in service, partially offset by property dispositions.

The change in net cash provided by/(used in) investing activities in 2021 as compared to 2020 was primarily due to the acquisitions of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum and net proceeds from disposition activity in 2020, partially offset by higher investments in development in-process, tenant improvements and building improvements in 2020.

The change in net cash provided by operating activities in 2022 as compared to 2021 was primarily due to higher net cash from the operations of acquired real estate assets from PAC, the acquisition of SIX50 at Legacy Union, same properties and development properties placed in service, partially offset by property dispositions and higher interest expense.

We expect net cash related to operating activities to be lower in 2023 as compared to 2022 due to higher interest expense and property dispositions, partially offset by net cash from the operations of acquired properties and development properties placed in service.

The change in net cash used in investing activities in 2022 as compared to 2021 was primarily due to investments in the 2827 Peachtree, Granite Park Six, 23Springs and McKinney & Olive joint ventures in 2022, lower net proceeds from disposition activity in 2022 and higher investments in tenant and building improvements in 2022, partially offset by lower acquisition activity and investments in development in-process in 2022.

We expect uses of cash for investing activities in 2023 to be primarily driven by whether or not we acquire and commence development of additional office buildings in the BBDs of our markets.

Additionally, as of December 31, 2021, we have approximately $176 million left to fund of our previously-announced consolidated and unconsolidated development activity in 2022 and future years.

We expect these uses of cash for investing activities will be partly offset by proceeds from property dispositions in 2022.

The change in net cash used in financing activities in 2021 as compared to 2020 was primarily due to higher proceeds from the issuance of common stock in 2021, partially offset by higher net debt repayments in 2021.

We expect these uses of cash for investing activities will be partially offset by proceeds from property dispositions in 2023.

The change in net cash provided by/(used in) financing activities in 2022 as compared to 2021 was primarily due to net debt borrowings to fund our investment activity in 2022.

Assuming the net effect of our acquisition, disposition and development activity in 2023 results in an increase to our assets, we would expect outstanding debt and/or Common Stock balances to increase.

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Total capitalization $ 6,235,817 $ 7,606,613

At December 31, 2021, our mortgages and notes payable and outstanding preferred stock represented 37.0% of our total capitalization and 39.4% of the undepreciated book value of our assets.

As of December 31, 2022, our mortgages and notes payable and outstanding preferred stock represented 51.7% of our total capitalization and 42.0% of the undepreciated book value of our assets.

See also “Executive Summary - Liquidity and Capital Resources.”

Our mortgages and notes payable as of December 31, 2022 consisted of $484.0 million of secured indebtedness with a weighted average interest rate of 3.62% and $2,729.6 million of unsecured indebtedness with a weighted average interest rate of 4.17%.

The secured indebtedness, which includes four secured loans recorded at fair value of $403 million in the aggregate assumed as part of the acquisition of real estate assets from PAC, was collateralized by real estate assets with an undepreciated book value of $727.8 million.

The secured indebtedness was collateralized by real estate assets with an undepreciated book value of $747.4 million.

As of December 31, 2022, $936.0 million of our debt does not bear interest at fixed rates or is not protected by interest rate hedge contracts.

On January 28, 2022, floating-to-fixed interest rate swaps with respect to an aggregate of $50.0 million of LIBOR-based borrowings expired.

Subsequently, as of January 28, 2022, we had $270.0 million of variable rate debt outstanding not protected by interest rate hedge contracts.

Investment Activity

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See “Item 1A.

Risk Factors – Risks Related to our Capital Recycling Activity – Recent and future acquisitions and development properties may fail to perform in accordance with our expectations and may require renovation and development costs exceeding our estimates.”

During the fourth quarter of 2021, we acquired various development land parcels in Nashville for an aggregate purchase price, including capitalized acquisition costs, of $35.1 million .

During the third quarter of 2021, we acquired a portfolio of real estate assets from PAC.

The portfolio consists of the following assets:

Asset Market Submarket/BBD Square Footage

150 Fayetteville Raleigh CBD 560,000

CAPTRUST Towers Raleigh North Hills 300,000

Capitol Towers Charlotte SouthPark 479,000

Morrocroft Centre Charlotte SouthPark 291,000

Galleria 75 Redevelopment Site Atlanta Cumberland/Galleria

Our total purchase price, net of closing credits and cash acquired, was $653.6 million, including $4.5 million of capitalized acquisition costs.

The acquisition included the assumption of four secured loans recorded at fair value of $403 million in the aggregate, with a weighted average effective interest rate of 3.54% and a weighted average maturity of 10.7 years.

We incurred $3.5 million of debt issuance costs related to these assumptions.

During the third quarter of 2021, we also acquired development land in Nashville for a purchase price, including capitalized acq uisition costs, of $22.9 million.

During the second quarter of 2021, we acquired development land in Nashville for a purchase price of $16.1 million, including capitalized acq uisition costs, of which $16.0 million is expected to be paid within two years.

Duri ng the first quarter of 2021, we acquired our joint venture partner’s 75.0% interest in our Highwoods DLF Forum, LLC joint venture (the “Forum”), which owned five buildings in Raleigh encompassing 636,000 rentable square feet, for a purchase price of $131.3 million.

We previously accounted for our 25.0% interest in this joint venture using the equity method of accounting.

The assets and liabilities of the joint venture are now wholly owned and we have determined the acquisition constitutes an asset purchase.

As such, because the Forum is not a variable interest entity, we allocated our previously held equity interest at historical cost along with the consideration paid and acquisition costs to the assets acquired and liabilities assumed.

Risk Factors – Risks Related to our Investment Activity – Recent and future acquisitions and development properties may fail to perform in accordance with our expectations and may require renovation and development costs exceeding our estimates.”

During the third quarter of 2022, we acquired SIX50 at Legacy Union, a 367,000 square foot trophy office building in Charlotte’s Uptown CBD submarket, for a net purchase price of $198.0 million.

The assets acquired and liabilities assumed were recorded at relative fair value as determined by management, with the assistance of third party specialists, based on information available at the acquisition date and on current assumptions as to future operations.

During the second quarter of 2022, we acquired land in Charlotte for an aggregate purchase price, including capitalized acquisition costs, of $27.0 million.

- Dispositions

During the fourth quarter of 2021, we sold nine office buildings and various land parcels in Atlanta, Raleigh, Richmond and Tampa for an aggregate sale price of $191.2 million (before closing credits to buyer of $1.6 million) and recorded aggregate gains on disposition of property of $93.7 million, including land sale gains of $9.7 million.

During the third quarter of 2021, we sold two office buildings in Richmond and Memphis for an aggregate sale price of $119.7 million (before closing credits to buyer of $4.4 million) and recorded aggregate gains on disposition of property of $37.3 million.

We have a 50.0% ownership interest in Highwoods-Markel Associates, LLC (“Markel”), a consolidated joint venture.

During the third quarter of 2021, Markel sold land in Richmond for a sale price of $3.0 million and recorded gain on disposition of property of $1.3 million.

During the second quarter of 2021, we sold an office building in Tampa for a sale price of $43.0 million (before closing credits to buyer of $0.9 million) and recorded a gain on disposition of property of $22.9 million.

During the first quarter of 2021, we sold an office building in Atlanta for a sale price of $30.7 million and recorded a gain on disposition of property of $18.9 million.

- New Joint Venture Investments

During the fourth quarter of 2021, we and Brand Properties, LLC (“Brand”) formed a joint venture (the “2827 Peachtree joint venture”) to construct 2827 Peachtree, a 135,000 square foot, multi-customer office building located in Atlanta’s Buckhead submarket.

2827 Peachtree has an anticipated total investment of $79.0 million.

Construction of 2827 Peachtree began in the first quarter of 2022 with a scheduled completion date in the third quarter of 2023.

At closing, we agreed to contribute cash of $13.3 million ($6.1 million of which was funded as of December 31, 2021) in exchange for a 50.0% interest in the 2827 Peachtree joint venture and Brand contributed land valued at $7.7 million and agreed to contribute cash of $5.6 million in exchange for the remaining 50.0% interest.

We also committed to provide a $49.6 million interest-only secured construction loan to the 2827 Peachtree joint venture that is scheduled to mature in December 2024 with an option to extend for one year.

The loan bears interest at LIBOR plus 300 basis points.

As of December 31, 2021, no amounts under the loan have been funded.

During the third quarter of 2022, we sold land in Richmond for a sales price of $23.3 million and recorded a gain on disposition of property of $9.4 million.

During the second quarter of 2022, we sold office buildings and land in Atlanta, Greensboro and Tampa for an aggregate sales price of $100.7 million (before closing credits to buyers of $1.1 million) and recorded aggregate gains on disposition of property of $50.0 million.

During the first quarter of 2022, we sold land in Tampa for a sales price of $9.6 million and recorded a gain on disposition of property of $4.1 million.

- Joint Venture Investments

During the third quarter of 2022, we entered the Dallas market through the formation of two joint ventures with Granite to develop Granite Park Six and 23Springs.

In connection with the formation, we agreed to contribute our 50.0% share of the equity required to fund each development project.

The Granite Park Six joint venture has an anticipated total investment of $200.0 million and the 23Springs joint venture has an anticipated total investment of $460.0 million.

As of December 31, 2022, we have fully funded our share of the equity for the Granite Park Six joint venture and we have funded $41.9 million of our share of the equity for the 23Springs joint venture.

The Granite Park Six joint venture obtained a construction loan for $115.0 million, with an interest rate of SOFR plus 394 basis points and a maturity date of January 2026.

In connection with this loan, the Granite Park Six joint venture obtained an interest rate hedge contract that effectively caps the underlying SOFR rate at 3.5% with respect to $95.2 million of any outstanding amounts.

The cap expires in July 2024.

As of December 31, 2022, $15.3 million was drawn on this loan.

The 23Springs joint venture obtained a construction loan for $265.0 million, with an interest rate of SOFR plus 355 basis points and a maturity date of March 2026.

In connection with this loan, the 23Springs joint venture obtained an interest rate

hedge contract that effectively caps the underlying SOFR rate at 3.5% with respect to $83.0 million of any outstanding amounts.

The cap expires in April 2024.

As of December 31, 2022, no amounts were drawn on this loan.

During the fourth quarter of 2022, we expanded our Dallas market presence by acquiring McKinney & Olive through the formation of another joint venture with Granite in which we own a 50% interest.

The McKinney & Olive joint venture has an anticipated total investment of $394.7 million, which includes $1.7 million of near-term building improvements and $2.0 million of transaction costs.

As part of the transaction, the McKinney & Olive joint venture assumed a secured loan recorded at fair value of $137.0 million, with a stated interest rate of 4.5% and an effective interest rate of 5.3%, that is scheduled to mature in July 2024.

The remainder of the purchase price was funded with $80.0 million of short-term preferred equity contributed by us and $86.4 million of common equity contributed by each of Granite and us.

The preferred equity contributed by us will be entitled to receive monthly distributions initially at a minimum rate of SOFR plus 350 basis points.

During the fourth quarter of 2022, we formed a joint venture with The Bromley Companies (“Bromley”) in which we own a 50% interest to construct Midtown East, a multi-customer office development project located in the mixed-use Midtown Tampa project in Tampa’s Westshore submarket.

Upon completion, the Midtown East joint venture will own 143,000 square feet of an overall 432,000 square foot tower.

The rest of Midtown East will serve as the future headquarters of Tampa Electric and Peoples Gas.

The total anticipated investment for the Midtown East joint venture’s share of the overall project is $83.0 million.

In connection with the formation, we agreed to contribute our 50% share of the equity required to fund the development project, $0.3 million of which was funded as of December 31, 2022.

We also committed to provide a $52.3 million interest-only secured construction loan to the Midtown East joint venture that is scheduled to mature on the third anniversary of completion.

The loan bears interest at SOFR plus 450 basis points.

As of December 31, 2022, no amounts were drawn on this loan.

- In-Process Development

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Sales of the shares, if any, may be made by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of such firms (which may include block trades).

During the fourth quarter of 2021, the Company issued 156,913 shares of Common Stock at an average gross sales price of $46.75 per share and received net proceeds, after sales commissions, of $7.2 million.

We paid an aggregate of $0.1 million in sales commissions to Jefferies, LLC during the fourth quarter of 2021.

During the first quarter of 2021, we entered into a new $750.0 million unsecured revolving credit facility, which replaced our previously existing $600.0 million revolving credit facility and includes an accordion feature that allows for an additional $550.0 million of borrowing capacity subject to additional lender commitments.

Our new revolving credit facility is scheduled to mature in March 2025.

During the first quarter of 2022, the Company issued 130,011 shares of Common Stock at an average gross sales price of $46.50 per share and received net proceeds, after sales commissions, of $6.0 million.

We paid an aggregate of $0.1 million in sales commissions to Jefferies, LLC during the first quarter of 2022.

Our $750.0 million unsecured revolving credit facility is scheduled to mature in March 2025 and includes an accordion feature that currently allows for an additional $200.0 million of borrowing capacity subject to additional lender commitments.

Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-month periods.

The current interest rate on the new facility at our existing credit ratings is LIBOR plus 90 basis points and the annual facility fee is 20 basis points.

During the second quarter of 2022, in connection with the modification of our $200.0 million term loan as discussed below, the interest rate on our revolving credit facility was converted from LIBOR plus 90 basis points to SOFR plus a related spread adjustment of 10 basis points and a borrowing spread of 85 basis points, based on current credit ratings.

The annual facility fee is 20 basis points.

The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services.

The financial and other covenants under the new

facility are substantially similar to our previous credit facility.

We incurred $4.8 million of debt issuance costs, which are being amortized along with certain existing unamortized debt issuance costs over the remaining term of our new revolving credit facility.

We recorded $0.1 million of loss on debt extinguishment.

There was $70.0 million outstanding under our new revolving credit facility at both December 31, 2021 and January 28, 2022.

At both December 31, 2021 and January 28, 2022, we had $0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility.

As a result, the unused capacity of our revolving credit facility at both December 31, 2021 and January 28, 2022 was $679.9 million.

We previously entered into floating-to-fixed interest rate swaps through January 2022 with respect to an aggregate of $50.0 million LIBOR-based borrowings.

These swaps effectively fix the underlying one-month LIBOR rate at a weighted average rate of 1.693%.

As of January 28, 2022, these interest rate swaps have expired.

During the third quarter of 2021, in conjunction with the acquisition of real estate assets from PAC, we assumed four secured mortgage loans recorded at fair value of $403 million in the aggregate, with a weighted average effective interest rate of 3.54% and a weighted average maturity of 10.7 years.

We incurred $3.5 million of debt issuance costs related to these assumptions, which will be amortized over the remaining terms of the loans.

During the third quarter of 2021, we also obtained a $200.0 million, six-month unsecured bridge facility.

The bridge facility was originally scheduled to mature in January 2022.

The bridge facility bore interest at LIBOR plus 85 basis points, had a commitment fee of 20 basis points and contained financial and other covenants that are similar to the covenants under our $750 million unsecured revolving credit facility.

We incurred $1.0 million of debt issuance costs related to this bridge facility which were being amortized over the six-month term.

As of December 31, 2021, this bridge facility was prepaid in full without penalty.

We recorded $0.2 million of loss on debt extinguishment related to this prepayment.

During the second quarter of 2021, we prepaid without penalty the remaining $150.0 million principal amount of 3.20% unsecured notes that was scheduled to mature in June 2021.

We recorded $0.1 million of loss on debt extinguishment related to this prepayment.

We regularly evaluate the financial condition of the financial institutions that participate in our credit facilities and as counterparties under interest rate swap agreements using publicly available information.

Based on this review, we currently expect these financial institutions to perform their obligations under our existing facilities and swap agreements.

We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions.

There was $386.0 million and $392.0 million outstanding under our revolving credit facility as of December 31, 2022 and January 27, 2023, respectively.

As of both December 31, 2022 and January 27, 2023, we had $0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility.

As a result, the unused capacity of our revolving credit facility as of December 31, 2022 and January 27, 2023 was $363.9 million and $357.9 million, respectively.

During the second quarter of 2022, we modified our $200.0 million unsecured bank term loan to extend the maturity date from November 2022 to May 2026.

As part of this modification, we also obtained a $150.0 million delayed-draw term loan, which was drawn in its entirety in the third quarter of 2022, that is scheduled to mature in May 2027.

The interest rate, based on current credit ratings, is SOFR plus a related spread adjustment of 10 basis points and a borrowing spread of 95 basis points.

The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services.

We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions.

We incurred $2.7 million of debt issuance costs, which are being amortized along with certain existing unamortized debt issuance costs over the remaining term of our modified term loan.

During the fourth quarter of 2022, we obtained a $200.0 million, two-year unsecured bank term loan that is scheduled to mature in October 2024.

Assuming no defaults have occurred, we have an option to extend the maturity for one additional year.

The interest rate, based on current credit ratings, is SOFR plus a related spread adjustment of 10 basis points and a borrowing spread of 95 basis points.

The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services.

We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions.

Additionally, we used the additional $200.0 million of borrowings, together with available cash and borrowings under our revolving credit facility, to prepay without penalty $250.0 million principal amount of 3.625% unsecured notes that were scheduled to mature in January 2023.

We regularly evaluate the financial condition of the financial institutions that participate in our credit facilities and as counterparties under any interest rate swap agreements using publicly available information.

Based on this review, we currently expect these financial institutions to perform their obligations under our existing facilities and any swap agreements.

For information regarding our interest hedging activities and other market risks associated with our debt financing activities, see “Item 7A.

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Face Amount Carrying Amount Stated Interest Rate Effective Interest Rate

Notes due January 2023 $ 250,000 $ 249,726 3.625 % 3.752 %

Notes due March 2027 $ 300,000 $ 298,334 3.875 % 4.038 %

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Off-Balance Sheet Arrangements

During the fourth quarter of 2022, we and Brand formed the 2827 Peachtree joint venture.

We own a 50% interest in this unconsolidated joint venture.

For additional information, see “Investment Activity – New Joint Venture Investments.”

During the third quarter of 2022, we formed two joint ventures with Granite.

During the fourth quarter of 2022, we formed an additional joint venture with Granite and a joint venture with Bromley.

We own a 50% interest in each of these unconsolidated joint ventures.

For additional information, see “— Investment Activity – Joint Venture Investments.”

Contractual Obligations

The following table sets forth a summary regarding our known material contractual obligations on a cash basis, including required interest payments for those items that are interest bearing, at December 31, 2021 (in thousands):

Amounts due during the years ending December 31,

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Advances to unconsolidated affiliates (3)

97,870 37,982 32,457 16,723 9,708 1,000 —

Operating and Finance Lease Obligations:

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(1) Excludes amortization of premiums, discounts, debt issuance costs and/or purchase accounting adjustments.

(2) Consists primarily of commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements, and contracts for development/redevelopment projects.

This includes $134.1 million of contractual commitments related to our consolidated development pipeline activity, newly acquired properties and future consideration for a parcel of development land, of which $80.1 million is scheduled to be funded in 2022.

2022 includes future spend for tenant improvements that can be used at the option of the customer during the remaining lease term.

(2) Consists primarily of commitments under signed leases and contracts for operating properties (excluding tenant-funded tenant improvements), contracts for development/redevelopment projects and unfunded joint venture equity contributions agreed to at formation.

Future spend for tenant improvements that can be used at the option of the customer during the remaining lease term has been included in 2023.

The timing of these lease and contractual commitments may fluctuate.

The interest payments due on mortgages and notes payable are based on the stated rates for the fixed rate debt and on the rates in effect at December 31, 2021 for the variable rate debt.

The weighted average interest rate on our fixed (including debt with a variable rate that is effectively fixed by related interest rate swaps) and variable rate debt was 3.59% and 1.14%,

respectively, at December 31, 2021.

(3) Includes estimated draws on loan commitments to our joint ventures related to our unconsolidated development activity.

The interest payments due on mortgages and notes payable are based on the stated rates for the fixed rate debt and on the rates in effect as of December 31, 2022 for the variable rate debt.

The weighted average interest rate on our fixed and variable rate debt was 3.59% and 5.30%, respectively, as of December 31, 2022.

For additional information about our operating and finance lease obligations, mortgages and notes payable and purchase obligations, see Notes 2, 6 and 7, respectively, to our Consolidated Financial Statements.

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• expected cash flows from financing and investing activities, including from the sales of assets generating taxable gains to the extent such assets are not sold in a tax-deferred exchange under Section 1031 of the Internal Revenue Code or another tax-free or tax-deferred transaction.

The Company declared and paid a cash dividend of $0.48 per share of Common Stock in the first and second quarter of 2021, respectively, and $0.50 per share of Common Stock in the third and fourth quarter of 2021, respectively.

The Company declared and paid a cash dividend of $0.50 per share of Common Stock in each quarter of 2022.

On February 1, 2023, the Company declared a cash dividend of $0.50 per share of Common Stock, which is payable on March 14, 2023 to stockholders of record as of February 21, 2023.

Current and Future Cash Needs

We anticipate that our available cash and cash equivalents, cash flows from operating activities and other available financing sources, including the issuance of debt securities by the Operating Partnership, the issuance of secured debt, bank term loans, borrowings under our revolving credit facility, the issuance of equity securities by the Company or the Operating Partnership and the disposition of non-core assets, will be adequate to meet our short-term liquidity requirements, including the $200.0 million unsecured bank term loan that is scheduled to mature in November 2022 and the $250.0 million principal amount of unsecured notes that are scheduled to mature in January 2023.

We generally believe existing cash and rental and other revenues will continue to be sufficient to fund operating and general and administrative expenses, interest expense, our existing quarterly dividend and existing portfolio capital expenditures, including building improvement costs, tenant improvement costs and lease commissions.

We had $21.4 million of cash and cash equivalents as of December 31, 2022.

The unused capacity of our revolving credit facility at both December 31, 2021 and January 28, 2022 was $679.9 million, excluding an accordion feature that allows for an additional $550.0 million of borrowing capacity subject to additional lender commitments.

The unused capacity of our revolving credit facility as of December 31, 2022 and January 27, 2023, respectively, was $363.9 million and $357.9 million, excluding an accordion feature that allows for an additional $200.0 million of borrowing capacity subject to additional lender commitments.

We have a currently effective automatic shelf registration statement on Form S-3 with the SEC pursuant to which, at any time and from time to time, in one or more offerings on an as-needed basis, the Company may sell an indefinite amount of common stock, preferred stock and depositary shares and the Operating Partnership may sell an indefinite amount of debt securities, subject to our ability to effect offerings on satisfactory terms based on prevailing market conditions.

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In April 2021, we announced a plan to fund the acquisition of real estate assets from PAC by selling $500 million to $600 million of non-core assets by mid-2022.

From the date of that announcement through December 31, 2021, we sold $353 million of properties no longer considered to be core assets due to location, age, quality and/or overall strategic fit.

During 2023, we expect to sell up to $400 million of properties no longer considered to be core assets due to location, age, quality and/or overall strategic fit.

We can make no assurance, however, that we will sell any additional non-core assets or, if we do, what the timing or terms of any such sale will be.

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Credit losses on lease related receivables, which include accounts receivable and accrued straight-line rents receivable, are recorded as a reduction to rental and other revenues when the amount recorded is determined, in management’s judgement, to not be probable of collection.

Management’s evaluation of collectability requires the exercise of considerable judgement in assessing the current credit quality of our customers using payment history and other available information about the financial condition of the customers.

condition of the customers.

During the year ended December 31, 2022, we have not experienced significant credit losses based on management’s evaluation of collectability of our lease receivables.

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As of December 31, 2021, our same property portfolio consisted of 148 in-service properties encompassing 24.2 million rentable square feet that were wholly owned during the entirety of the periods presented (from January 1, 2020 to December 31, 2021).

The change in our same property portfolio was due to the addition of one property encompassing 0.8 million rentable square feet acquired during 2019 and three newly developed properties encompassing 0.7 million rentable square feet placed in service during 2019.

These additions were offset by the removal of 15 properties (13 office properties and two amenity retail properties) encompassing 1.7 million rentable square feet that were sold during 2021.

The change in our same property portfolio was due to the addition of five properties encompassing 0.6 million rentable square feet, offset by the removal of five properties encompassing 0.4 million rentable square feet that were sold during 2022.

Rental and other revenues related to properties not in our same property portfolio were $121.8 million and $82.7 million for the years ended December 31, 2022 and 2021, respectively.

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Same property cash net operating income $ 462,289 $ 460,565

(1) Includes $2.9 million of repayments of temporary rent deferrals, net of additional temporary rent deferrals granted by the Company during the year ended December 31, 2021, and $3.6 million of temporary rent deferrals, net of repayments, granted by the Company during the year ended December 31, 2020.

(1) Includes $0.1 million and $3.0 million of repayments of temporary rent deferrals, net of additional temporary rent deferrals granted by the Company during the years ended December 31, 2022 and 2021, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis