Should I go ahead and break the silence? We're good to go. Okay. Felt like a long wait there. So, first I'll introduce myself. I'm Michael Lewis, Managing Director and Lead Office REIT Analyst at Truist Securities. I'm joined on stage here by Ted Klinck, President and Chief Executive Officer of Highwoods Properties. To his immediate right is Brendan Maiorana, making sure you're on the immediate right, Chief Financial Officer, and Jeff Miller, General Counsel, on the end there. So Highwoods Properties, ticker HIW, is a Sun Belt-focused office REIT, headquartered in Raleigh, North Carolina, with a $2.7 billion equity market cap. I am gonna leave time for questions at the end. I'm not a stickler for rules if somebody wants to interrupt, but we will leave some time at the end for questions.
But I'll kick things off. And so my first question, sort of open-ended, right? Before we get into market fundamentals and other topics, maybe, Ted, for the investors out there who are a little less familiar with Highwoods, maybe you could give a brief overview of the company and your broad strategy.
Sure. Good morning, everybody. Thanks, Michael. What I'd like to do before we go into Q&A is briefly review our most recent at-a-glance, which is available on our website, highwoods.com. Go to the Investor section, then Corporate Profile, and just scroll down to 1Q 2024 presentation. We're gonna briefly just flip pages. Brendan and I will sort of tag team. But starting out on page 4, you know, we're at 27.5 million sq ft portfolio at the end of the first quarter, 88.5% occupied. Average portfolio is about 20 years old or so, and we get 95% of our NOI coming from the Sun Belt markets, fastest growing markets in the Sun Belt. On page 5, you can see 90% of our NOI comes from ULI.
Every year, ULI comes out with the best markets to invest in. 94% of our NOI comes from ULI's top 20 markets in 2024. This page also shows how our portfolio is split between CBD, infill, and suburban submarkets, and our strategy is to be in what we've called for years, the Best Business Districts, or BBDs, as we call them. They're not necessarily urban or suburban, but it's the best employment centers in each of our markets. Our diversification is very purposeful, and it served us well, especially during COVID, as suburban and infill markets actually outperformed from a leasing perspective in the return to office than what we saw from CBD markets.
So, page 6, our footprint, you can see, outperforms gateway markets and the Sun Belt overall on various demographic trends, whether it be population, employment growth, rent, or net absorption. And I think with respect to the demographics in our markets, I think it's gonna look even better once we exit Pittsburgh market, which we announced, a couple of years ago. Page 7, I think, is an interesting slide, flight to quality. We hear that often in the office sector, the flight to quality. But it's important to note that it's not just. It's not all offices are created equal, right? Location, portfolio, quality, and ever increasingly important is the quality of the ownership and the capital stack and the strength of, the ownership's balance sheet. It's really making a difference as we capture market share.
You can see here, before the pandemic, our occupancy outperformed, whether it be the U.S., Highwoods markets, or BBDs, but call it 340 basis points. We've gained market share over the last 3 years. We're now about 800 basis point better in occupancy than our markets and our submarkets. A lot of that, again, it's, it's the quality of the ownership. We have capital to invest in TIs and commissions relative to a lot of our private, private peers. Quickly, pages 9 and 10 just show how we reinvest in our portfolio. We call this Highwoodizing. This is where we go invest capital dollars in, in our renovation and upgrading of our portfolio. Page 10 is, shows our diversification. Again, very, purposeful diversification, both by industry, market, customer size, and again, it's served us very well over the years.
As you can see, we have no customer greater than 4% of revenues. Our top 20 customers account for less than 30%, about 27.5% of our revenue. Our largest market is just over 20% of our NOI, and you can see at the top left, no industry is greater than 20% of our revenue. Important to note that we don't have any WeWork exposure, and our total coworking is about 1% of our revenue. Page 11, you can just see on rents, growth, occupancy, NOI growth, occupancy, it's been pretty steady over the years. You know, average in-place rents have grown about 4.2% CAGR. You can see that on the top left. Same property NOI has been positive every year since 2013.
You can see our forecast, our outlook for 2024. Our second-gen lease spreads have been positive. A little bit below what they were pre-pandemic, but still positive, and we get virtually annual bumps in virtually all of our leases. And then you can see average occupancy has generally held up. With that, I'm gonna turn it over to Brendan to run through the rest of the presentation.
Thanks, Ted. Good morning, everybody. So starting on slide 13, and what we show here are a variety of graphs across a bunch of different metrics, whether it's occupancy, FFO growth, same property NOI growth, or dividend growth, and we feel like we stack up well on each of those metrics relative to other office REITs that are out there. And it's kind of irrespective of time period. So if we go back, we've done this since COVID, are the charts that we're showing, but regardless of time period, we think we generally fare well, and that goes to the diversification that Ted talked about. We think that that served us well to consistently deliver good financial performance.
... Moving on to slide 14, shows what our cash flow growth has been over time, and this plays into kind of the value proposition that we like to provide for our shareholders, which is we're going to provide, a good current level of cash flow, which we believe has long-term growth over time. And so we're delivering, you can see from this chart, it's been about a compounded annual growth rate of about 5.5%-6% over the past 13 years. We think that there's good long-term upside, on that. And we feel like we're delivering, good, good, cash flow growth today with growth over time. Moving to slide 15, that cash flow, we're very transparent in terms of how we, report our metrics.
So we include 100% of leasing capital, 100% of building improvement capital, and renovation capital in our operating cash flow metrics. And we do not take buildings out of service, even if a tenant vacates the entirety of a building. We have 2 buildings this year that we're carrying for all of 2024 and carried for all of 2023, where tenants vacated. We didn't take those out of service, and we don't capitalize any costs on operating portfolio buildings. And that plays into slide 16, where you can see some of the embedded FFO growth potential that we have from some of those low-occupied buildings.
The two that I mentioned, we have largely backfilled those vacancies, but they're not contributing any NOI or earnings growth in 2024, but will be significant contributors when those buildings come back online, largely in 2025. And that's comparable with, we've got some completed but not yet stabilized development properties and some buildings that are under construction. And all of that, when that comes back online, will generate an incremental, roughly, $30 million of underlying earnings and cash flow growth over the next few years. Moving on to slide 17, you can see our earnings outlook for 2024. We're in about the mid-350s on FFO per share, with positive growth on same-property NOI growth, and an occupancy range in the average about 88%. So we think that that's holding up reasonably well.
To put that occupancy range in context, in March 2020, at the onset of COVID, we were at about 91%. So we're, as we stand at the end of March, we are at 88.5%. So even though we've absorbed a lot of challenges within the office space and leasing volumes that have been down a little bit, our occupancy is down about 250 basis points over the past four years. And that includes taking that vacancy of those two buildings that I mentioned that are vacant today but have been leased up and will come back online. So if you adjust for those two, our occupancy is really only down about 100 basis points since the beginning of March 2020 or over the past four years.
Moving on to slide 18, our balance sheet is in really good shape. We're at about 6x debt to EBITDA. We're Baa2 and BBB rated by both Moody's and S&P, and have good access to the capital markets. I'll move on to slide 19. We don't have any debt maturities on a consolidated basis before May 2026. We have, as it stands today, we have nothing drawn on our credit facility, after we had some asset sales early in the second quarter. So we have $750 million available on our credit facility and no debt maturities before May 2026. So balance sheet is in excellent shape. Moving on to slide 20. We've been an active asset recycler over the past really couple of decades.
And we like that, where we can toggle between kinda acquisitions when we think risk-adjusted returns on acquisitions are better than development, and then when development's better, we'll tend to be there. And we will sell assets. We're a regular recycler of capital, and so we typically sell assets anywhere from, in a normal year, call it $100 million-$200 million a year. And then if we feel like there are more strategic transactions, we've certainly done more than that in certain years as well, as you can see from these bar charts and on slide 20. The next few pages just show some examples of acquisitions, development, and some market exits that we've done over the past several years. I mentioned we generally sell assets on a normalized basis.
We've sold eighty, roughly $80 million, $79 million so far year to date. This is on slide 24. We said that we could do an additional up to $150 million for the remainder of this year. So if we reach the high end of guidance, that would be about $230 million of sales. Those sales are likely to be, dilutive to near-term FFO, because the cap rates that we're selling at are generally a little bit higher than the incremental, debt rate that we are paying down. But the, the thing that is probably not readily apparent is those are typically accretive to us in terms of a cash flow basis.
So the NOI yield is a little bit higher than the underlying cash flow yield, and we usually can get proceeds, pay down debt, and that actually is an improvement to balance sheet, improvement to portfolio quality, and improves our cash flow as well. And then just on slide 25, we've been pretty active in terms of selling non-core land or non-office using land over the past 24 months or so. I think in the past 18 months, we've sold about $50 million of non-office using land, and we likely will sell more of that as we go forward over the next several quarters. And then in process development on slide 26, we have a little over $500 million at our share.
There's a little over $200 million left to fund, and we think that that will generate about $40 million of incremental NOI when all of that comes online over the next few years. And then just wrapping up over the last couple of slides, we have development potential based on our land bank of over $2 billion of future office, and then some mixed use, which likely we probably will partner with folks to do some of the mixed-use stuff that's there, but that will be future growth potential for us. And then finally, just wrapping up last slide before I turn it back to Mike, our ESG slide, we continue to make good progress on ESG.
I will give a plug that we put out our corporate resiliency report for 2024 just a few weeks ago, and have updated our emissions targets and some other goals that are out there. So that's a long report that's out there, also available on our website. And with that, I'll turn it back to Mike.
Great. 30 slides in about 13 minutes. Not too bad.
Yeah.
So I'm gonna start sort of general, right? I think the first thing that comes to a lot of investors' minds in the office space is probably work from home and hybrid work strategies. A lot of us are living that life. So maybe, you know, Ted, you showed a slide where that occupancy has gapped out between you and kind of the broader market. Maybe talk a little bit about why that is, why Highwoods is positioned to capture more than its fair share of tenant demand, and what makes you feel comfortable with that going forward?
Yeah. Look, I think it's the quality of our portfolio first and foremost. We've spent a lot of time focused on getting our portfolio concentrated in the best business districts in each of our markets. I do think it's a, it's a important distinction that we're not just CBD, we're not just infill, we're not just a suburban company. We want to be in the best markets, best submarkets in each of our markets. So, you know, we often talk about we want to create a commute-worthy portfolio, and that commute worthiness starts with a commute. So in some markets, suburban is where you want to be.
People don't want to necessarily get on mass transportation or drive 30-45 minutes, and we really saw that during COVID, when we got materially more leasing done in our suburban portfolio than we did in our urban portfolio. So we're roughly today, you know, roughly a third, a third, a third, and that served us really well during COVID and really reinforced our strategy. I think our performance sort of spoke for itself, so I think that's one. Secondly, I think it's the strength of the borrower. The gap between the haves and have-nots has never been wider, and we're seeing that in just the distress everyone talks about in the office market, where the capital stacks are upside down.
There's a lot of private owners today that are upside down, that don't have the ability or the willingness to invest in their office assets. They're dealing with their lenders, they're dealing with their limited partners, and they're trying to figure out, "How can we, how can we, continue to save our assets?" in many cases. Those are the assets in each of our markets. We know what assets are distressed in each market. Those are the buildings that really have a target on their back, I would say, in terms of who we're going after. So we're aggressively going after those. We can provide the TIs. You know, we have one great example. I think I briefly talked about it on our call in the first quarter.
One of our leasing reps started doing 1980s-style cold calling, getting out, knocking on doors in buildings, taking pictures of the tenant directories and all that. Made a call, three weeks later, we had a 30,000-sq-ft new customer moving just down the street to our building. It was a customer that said, "Look, there's no reason we would leave here, but I can't get our landlord to provide TIs and commissions, pay the TIs and commissions for the lease." We said, "Well, we can do that, and we can get your new workplace for you as well." So that's one example, and there's many others that we're in process of doing. So that's worked out well, again, as that gap widens between the haves and have-nots.
Great. So maybe a little more detailed, you know, how has new and renewal leasing trended on the margin? Any updates on upcoming tenant lease expirations? And, you know, you spoke about, portfolio occupancy troughing sometime early next year. Are you still on track for that? See some sort of inflection soon.
Sure. So leasing, as we talked about, you know, we finished up 2023 with a very strong quarter. It's the best leasing quarter we had in all of 2023, and then first quarter of 2024, that continued. We had a really strong leasing quarter. When I talk really about the strength of the leasing quarter, it's really about our new leasing versus overall the renewals. Renewals, you just you can only renew customers that have leases expiring for the most part. So we talked about new. We had over 400,000 sq ft of new leasing done in the first quarter after a very strong fourth quarter, and so far in the second quarter, it's continued to be very strong.
So we'll see where we end up, but we're very encouraged by the leasing activity we've continued to see. And in terms of some of the big leasing holes we have coming up, it's well known, and we've telegraphed for a couple of years. I sort of call it a gauntlet. Over about a six-month period, we have several large lease expirations. We've talked about the first one in September with Novelis in Buckhead. They're at the Two Alliance project, one of the highest quality buildings in all of Buckhead. So we have backfilled 50,000 sq ft of that 168,000 so far, and we've got a very strong prospect that we feel very good about, that's gonna take a vast majority of that one.
So hopefully, we're very close to not having to talk about that vacancy coming up. And then really, the next one is 317,000 sq ft in Pittsburgh, EQT Plaza building. We've... We went direct with a 16,000-footer, so that's down to about 300. We have a very strong prospect that we're very close to terms on. It'll be take about 53-55, something like that, then we've got a lot of proposals out. The leasing activity in actually, Pittsburgh, it had been slow since the pandemic. Pittsburgh had really acted like a Northeast market versus a Sun Belt market, hence the geography it's in. But leasing activity in Pittsburgh has really picked up in the last, I'd say 45-60 days.
We've got a lot more activity coming on those as well.
... Interesting. So, switching to the supply side, I imagine there's. You could correct me if I'm wrong, I imagine there's going to be very few office buildings built for a while. I can think of two ways that impacts you, right? So first, it should allow demand to catch up, which is a good thing. But second, development's been a meaningful part of Highwoods' strategy over the years. How are you thinking about your development platform and your land bank in this environment? And, you know, does this limit your external growth potential?
Yeah, a great question. I think coming out of this GFC, we're, we're dusting off the playbook we used coming out of the GFC. One of the great things about our platform is, you're exactly right, Michael, it's, it's development's been, been a great growth driver for us, but at the same time, we toggle to acquisitions. So coming out of the GFC, we didn't have any real... You can see it on one of the pages, the capital recycling page in our deck that Brendan talked about. We really didn't have any meaningful development announcements for about a three-year period, like 10, 11, 12. We might have had $70 million-$80 million total, if I remember right. I think that's going to be the same case here.
We shifted to acquisitions, and we bought several of our best assets we have in our portfolio today, we bought from lenders. We are aggressively calling on lenders just like we are today, and bought several assets at 50% of replacement cost. What we ultimately were able to get was very attractive, stabilized yields. Stabilized yields that were greater than what we could get on development. So I think that same environment's gonna be happening over the next coming years as acquisition opportunities come up. We're excited about the what we think can be great risk-adjusted yields. You don't have to layer all the development risk, and so we're excited about the opportunity ahead of us.
All right. So you sort of answered my next question about acquisitions, but I could ask, maybe more directly focused on asset values. When I was preparing these questions, I estimated your stock was trading just above a 10% implied cap rate. So what do you think, you know, what do you think asset values are today? And, you know, do you have disposition plans that might prove some of that out?
Yeah, look, I think probably everybody in here knows, and you know well that pegging values today is tough. The capital markets are generally locked up. Here's what I know. I know we have sold about $80 million of non-core assets out of our portfolio this year at a combined cap rate of mid-sevens. And those are non-core, sort of the lower end of the quality spectrum for our company. So again, compare that to where we're trading. But it's tough. I think hopefully we'll get more clarity on asset values, but we do want to do more dispositions. As Brendan alluded to, we've got another $150 million, up to $150 million.
Don't have anything of size in the market today, so I think it's going to be largely back-end loaded, but they're assets that we do think there's going to be buyers for. There's going to be liquidity. So the, the capital markets, while they're largely locked up, that is for the bigger deals. There are plenty of buyers out there for smaller deals. The high net worth capital that can do finance, smaller deals, and all that, there's still, there's still there is a market for that. Bigger is harder, and then when you go to secondary markets, it's harder. But, we found plenty of buyers for our $20-$30 million assets that we've sold over the last couple of years.
Okay. And then, in terms of the balance sheet, I'm going to leave the question very open-ended, maybe for Brendan. Can you, you know, just tell us about your financing strategy, your access to capital, the cost of capital, how that's maybe changing?
Yeah, so we, in last year, kind of late last year, took it upon ourselves to proactively put our balance sheet in good shape, where we didn't really need to think about any significant capital raising for an extended period of time. So, at the November NAREIT conference, around that time, we did a, a bond issuance, $350 million bond issuance. We did that. We used some of those proceeds to pay down a term loan that was maturing this year, and the remainder of that to, pay down some balance on our line of credit. And then, went to our bank group and had a successful recast of our revolving credit facility.
So kept the capacity at $750 million, kept the terms kind of all the same, and pushed that out to 2029. So right now, we've got a $750 million revolving line of credit, doesn't mature until 2029, and I think, as I mentioned in some of the slides, don't have any, overall debt maturities on a consolidated basis until May of 2026. So we're really in good shape. We've got a little over $200 million left to fund on the development pipeline, and other than that, don't have any major kind of capital needs, other than there's a couple of debt maturities at some JV properties, but that's about it. So we're in good shape.
Great. So I always over-prepare. I have a list of questions here about as long as my arm. You can probably see my screen a little bit, but we have six minutes left, so, you know, we're all here for you guys. If anybody in the audience wants to ask questions, we can filter those in. Otherwise, otherwise, I'll keep going. So I see we have one. I think there's a microphone that is coming around.
You can just yell it.
Okay.
Thanks. Paula Pasquin, StoneX Advisory. Is there anything that you're seeing in Pittsburgh that might make you rethink your exit?
Look, good question. You know, I don't think so. I think, look, when you look at our market selection, it's what, what doesn't look like everything else, right? We're largely a Sun Belt-focused company. In Pittsburgh, we got in on a very opportunistic basis, and it had been a good performer for us. But when we look, you know, going forward, you know, we've exited out of a couple other slower growth markets, went into Charlotte and Dallas in the last five years. We think we're a Sun Belt—we want to be a Sun Belt-focused company. So, while Pittsburgh's performed well, and we're encouraged by the leasing we're seeing there, I think, we're going to continue to exit that over time. Again, we... It took us about three years.
We often get asked about, you know, "When are you going to finally get out of Pittsburgh?" Well, when we announced we were getting out of Greensboro and Memphis, in 2019, it took us three years to get out. So it's, it's gonna take time, and, but, but we do want to do an exit of that market. Thank you, Paula.
... Back to me. What's your dividend policy? Where does your payout stand? Is it secure? I get asked this a lot about office REITs.
Yeah, look, obviously, that's a topic, and has been for the last three or four years, virtually quarterly with the board. But if you look at—we've got improving cash flows. We like where we are. We've got a covered dividend, and Brendan can go into the details on it. So we think the dividend is an important component of the overall return for REITs, and so we've got growing cash flows, improving cash flows. We like the outlook we've got, so we feel very comfortable where we are.
Set it off. So I hope I didn't ask leading questions, so you guys could all look up and see I do have a buy rating on the stock. But maybe if we shift a little bit here, you know, what are the potential risks? So, you know, said differently, what keeps you up at night? You know, is it labor market trends? Is it migration trends that could change? Is it the capital markets? You know, what are the risks that you see out there?
Sure. Look, I think, we're all looking at interest rates, right? And certainly the job, sort of the job growth, outlook as well. Yeah, I'm not sure either one of those keep me up at night. They are what they... We can't control them, and I like to focus on what we can control. And when I look at where we are from a balance sheet perspective, there are no debt maturities coming up versus the private, most private owners have got the debt issues or whatever. You know, Highwoods is built for times like this. You know, this is my fourth cycle, and, to be a low-levered balance sheet in the highest growth markets in the country with the highest quality portfolio in our BBDs, both suburban and urban, I feel really good about...
We're gonna perform well, no matter what the economy is like. We can deal with a slowdown. We can deal with a little higher interest rates and, but, I think we're about as well-positioned as the company's ever been, to take advantage of the opportunities. So I feel good about it. Hopefully, interest rates, I do want interest rates. We all need them to come down. We all know real estate's a levered business, right? We need leverage, and, we need interest rates to go down so we can start getting the Florida flywheel going again on the capital markets, 'cause all they're locked up.
There's a lot of dry powder that's been raised to invest in real estate, but a lot of those investors, they wanna see what interest rates are gonna be, what's their cost to capital, and when's the Fed finally gonna move? So that's something I'm looking for, and I think if we can just get rates to go down, I don't know if it's 4% for the 10-year, what have you, but I think something like that's gonna be the catalyst to get the capital markets going again.
So I'll go off script a little bit, although not. It's not totally off script because anybody that's ever been in an NAREIT meeting with me, I think I've probably been to 30 of these, knows my last question is always the same. It's always, what didn't I ask that I should ask, or have you been asked any smart questions at NAREIT that, you know, we would benefit from hearing the answer to?
That one's been probably the most asked, which has been great, given it's been a, you know, a long slog for the office sector, for a while, is: When are you gonna go on the offensive? When are you gonna see this? And I think it's both, largely from investors, but analysts as well, is, "When is this time and take advantage? You talk about your great balance sheet. You've been selling assets, to build up dry powder to go invest. So when is that opportunity, and why, what's taking you so long?" Look, my view on that is, and jump in here, guys, is, look, the opportunity. So we had an off-site strategy meeting two or three weeks ago, and we force ranked our wish list.
So, a wish list means the assets we wanna buy. We have very defined submarkets we wanna be in within our markets, and we sorta know what the capital stack is, and we've had this wish list, and it changes, obviously, over time, but we're pretty good. Not perfect, but pretty good at estimating when assets are coming out. So we think there's gonna be a pretty large subset of opportunities for us. So we just wanna be patient, right? We know what assets we wanna own, but right now there's not a lot of capital going. So we think, let's just be patient on these and just wait for the right as we look at our forced ranking. Just be patient on the acquisitions 'cause they're gonna be plentiful.
This is gonna be a great buying opportunity for well-capitalized office REITs, but I don't think you have to jump in quite yet. People always say, you know, "No one rings a bell when you, you know, when we hit bottom." I think we're close, but I think we can still afford to be patient.
Great. We're right on time, unless there's anybody that wants to wrap it up. I think we're good. Thank you, everybody.