Seth Berge

Seth Berge asked if market uncertainty has changed the yields or IRRs used for acquisition underwriting and which markets Highwoods might target for growth.

Answer

CEO Theodore Klinck explained that their underwriting approach is driven by asset-level fundamentals and has not fundamentally changed due to macro uncertainty. He also stated that after recent entries into Charlotte and Dallas, the company is pleased with its current market footprint and is not actively looking to expand into new markets at this time.

Seth Berge inquired about the potential impact on the previously outlined $0.09 to $0.04 dilution from asset sales, given better-than-expected pricing and debt market conditions, and the possibility of bringing more assets to market.

Answer

Michael LaBelle (CFO, BXP Inc) stated that pricing and demand for asset sales are currently in line with or better than expectations, and BXP has more assets under contract and in the market than anticipated at Investor Day. He noted that the timing of sales is the primary factor influencing the dilution range, and while earlier sales could lead to slightly more dilution, BXP will provide updates quarterly as the program evolves.

Seth Berge inquired about the updated impact of asset sales dilution, initially projected at $0.09-$0.04, given better-than-expected pricing and debt market conditions, and the potential for accelerated sales.

Answer

CFO Michael LaBelle explained that the precise dilution impact is difficult to judge due to timing. He noted that BXP has more assets under contract and in the market than at Investor Day, with good demand. He acknowledged that significantly earlier sales could lead to slightly more dilution but promised more information in future quarters.

Seth Berge of Citigroup asked about changes to the in-service portfolio, noting assets being removed for redevelopment, and the potential impact on the portfolio's NOI run rate and occupancy guidance.

Answer

CFO Michael LaBelle explained that assets like Reston Corporate Center and Reservoir Place were removed from the in-service pool for strategic redevelopment to unlock future value. He noted that while this removes their current NOI, new developments coming into service in 2025 will be added, which could initially add 50-70 basis points to portfolio vacancy if they deliver unoccupied.

Seth Berge inquired about the lease economics being achieved at KOP 2, how they compare to initial underwriting, and the current tour activity for the remaining 2026 lease expirations.

Answer

Rob Paratte (EVP, Chief Leasing Officer) noted that KOP 2 lease economics vary by construction type, with rental rates meeting market expectations, though tenant improvement (TI) costs have increased. Angela Aman (CEO) clarified that rents are generally in line with underwriting, but capital is higher, and supplemental TI numbers for spec suites include 100% of the capital. She also clarified that the 2026 expiration pool is now 970,000 sq ft (down from 1.9 million sq ft), with strong overall tour activity, including a 170% increase in SoMa properties.

Seth Berge asked for more details on the lease economics being achieved at Kilroy Oyster Point Phase Two (KOP2) and how these leases compare to initial underwriting. He also inquired about the tour activity for the remaining 970,000 square feet of 2026 expirations, benchmarking it against previous quarters.

Answer

EVP, Chief Leasing Officer Rob Paratte explained that KOP2 lease economics vary by space type (spec lab vs. shell) but rents are in line with market expectations, though tenant improvement (TI) costs have increased. CEO Angela Aman clarified that rents have held well, but capital is higher, noting that spec suite capital can inflate reported TI numbers. Angela Aman also clarified that the 2026 expiration pool is down to 970,000 square feet from 1.9 million, with a 40% retention rate. Rob Paratte added that tour activity is increasing across all markets, with SOMA properties seeing a 170% year-over-year increase.

Seth Berge inquired about geographic performance differences within the U.S. office market and whether macro uncertainty has altered the company's hiring plans.

Answer

CFO Karen Brennan noted strong performance on the U.S. West Coast, mixed results in gateway cities, and stabilization in secondary markets. On hiring, she explained that plans are calibrated by business line and geography, emphasizing that JLL is well-staffed with producers after avoiding major cuts during the downturn and will continue to add talent strategically.

An analyst from Citi asked if strong vacancy leasing is leading to reduced concessions or higher rent growth, and inquired about the potential pricing for the company's planned bond offering.

Answer

President and CEO Stephen E. Budorick confirmed that while market rent growth remains stable, the company has successfully reduced leasing concessions, particularly free rent. EVP and CFO Anthony Mifsud estimated that a new bond offering would likely price at or slightly above 6% in the current market.

Seth Berge asked for quantification of the expanding investment pipeline amid capital markets dislocation and what portion of it consists of assets that meet Welltower's criteria.

Answer

CEO Shankh Mitra declined to quantify the pipeline, stating Welltower will provide liquidity if seller expectations are realistic. An executive added that market dislocation leads to broken deals, and Welltower often gets the call due to its execution certainty, but remains disciplined in acquiring assets that build regional density.

Seth Berge asked for color on leasing trends, specifically any differences observed between small and large tenants or between U.S. and global tenants.

Answer

CFO Emma Giamartino provided a high-level overview, stating that for office leasing, key metrics like square footage, term, and rent were all up. For industrial leasing, square footage and term were up slightly, while rent has remained flat.

Seth Berge inquired about the asset disposition market, asking how the macroeconomic environment has affected the buyer pool, pricing, and financing for the company's targeted $50 million in sales.

Answer

Executive Vice President Jerry Sweeney described the investment sales market as an "emerging bright spot." He noted a shift from a market dominated by private equity and family offices in 2023 to a reemergence of institutional buyers in 2024 and into 2025. The current buyer pool for Brandywine's assets for sale in Austin is a blend of institutional operators and private equity firms, with a good number of bidders showing interest.