# EDGAR Filing Document

**Accession Number:** 0000921082
**File Stem:** 0000921082-23-000036
**Filing Date:** 2023-3
**Character Count:** 69522
**Document Hash:** b036c5bf10062c0322ab6b90df51421a
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000921082-23-000036.hdr.sgml**: 20230331

**ACCESSION NUMBER**: 0000921082-23-000036

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230331

**DATE AS OF CHANGE**: 20230331

**EFFECTIVENESS DATE**: 20230331

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** HIGHWOODS PROPERTIES, INC.
- **CENTRAL INDEX KEY:** 0000921082
- **STANDARD INDUSTRIAL CLASSIFICATION:** REAL ESTATE INVESTMENT TRUSTS [6798]
- **IRS NUMBER:** 561871668
- **STATE OF INCORPORATION:** MD
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-13100
- **FILM NUMBER:** 23788137

**BUSINESS ADDRESS:**
- **STREET 1:** 150 FAYETTEVILLE STREET
- **STREET 2:** STE 1400
- **CITY:** RALEIGH
- **STATE:** NC
- **ZIP:** 27601
- **BUSINESS PHONE:** 9198724924

**MAIL ADDRESS:**
- **STREET 1:** 150 FAYETTEVILLE STREET
- **STREET 2:** STE 1400
- **CITY:** RALEIGH
- **STATE:** NC
- **ZIP:** 27601

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** HIGHWOODS PROPERTIES INC
- **DATE OF NAME CHANGE:** 19940330

### Attached PDF Documents

**Attachment 1:** `hiw12312022annualreport033.pdf`

![img-0.jpeg](img-0.jpeg)

# ANNUAL REPORT

2022

![img-1.jpeg](img-1.jpeg)

#BETTERTOGETHER

MCKINNEY & OLIVE DALLAS, TX

# HIGHWOODS PROPERTIES, INC.

# TABLE OF CONTENTS

| Item No. |  | Page |
| --- | --- | --- |
| PART I |  |  |
| 1. | BUSINESS | 3 |
| 1A. | RISK FACTORS | 8 |
| 1B. | UNRESOLVED STAFF COMMENTS | 19 |
| 2. | PROPERTIES | 20 |
| 3. | LEGAL PROCEEDINGS | 23 |
| 4. | MINE SAFETY DISCLOSURES | 23 |
| X. | INFORMATION ABOUT OUR EXECUTIVE OFFICERS | 24 |
| PART II |  |  |
| 5. | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 25 |
| 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 27 |
| 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 43 |
| 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 43 |
| 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 43 |
| 9A. | CONTROLS AND PROCEDURES | 44 |
| 9B. | OTHER INFORMATION | 47 |
| 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 47 |
| PART III |  |  |
| 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 48 |
| 11. | EXECUTIVE COMPENSATION | 48 |
| 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 48 |
| 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE | 48 |
| 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 48 |
|  | INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | 49 |

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# EXPLANATORY NOTE

We refer to Highwoods Properties, Inc. as the “Company,” Highwoods Realty Limited Partnership as the “Operating Partnership,” the Company’s common stock as “Common Stock” or “Common Shares,” the Company’s preferred stock as “Preferred Stock” or “Preferred Shares,” the Operating Partnership’s common partnership interests as “Common Units” and the Operating Partnership’s preferred partnership interests as “Preferred Units.” References to “we” and “our” mean the Company and the Operating Partnership, collectively, unless the context indicates otherwise.

The Company conducts its activities through the Operating Partnership and is its sole general partner. The partnership agreement provides that the Operating Partnership will assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership. The partnership agreement further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership.

Certain information contained herein is presented as of January 27, 2023, the latest practicable date for financial information prior to the filing of this Annual Report.

Except as otherwise noted, all property-level operational information presented herein, including the information set forth in “Part I, Item 2. Properties,” includes in-service wholly owned properties and in-service properties owned by consolidated joint ventures (at 100%) other than properties owned by Highwoods-Markel Associates, LLC (“Markel”). Development projects are not considered in-service properties until such projects are completed and stabilized. Stabilization occurs at the beginning of the first quarter after the earlier of the projected stabilization date and the date on which a project’s occupancy generally exceeds 93%.

Markel is a joint venture in which we own a 50% interest that was consolidated as of December 31, 2022. Effective January 1, 2023, the agreement governing the joint venture was modified to require the consent of both partners for major operating and financial policies of the entity. As a result, even though we remain the managing member, because we are no longer in sole control of the major operating and financial policies of the entity, we will no longer consolidate Markel and will account for the joint venture using the equity method of accounting effective January 1, 2023.

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# PART I

## ITEM 1. BUSINESS

### General

Highwoods Properties, Inc., headquartered in Raleigh, is a publicly-traded real estate investment trust (“REIT”). The Company is a fully integrated office REIT that owns, develops, acquires, leases and manages properties primarily in the best business districts (BBDs) of Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond and Tampa. Our Common Stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “HIW.”

As of December 31, 2022, the Company owned all of the Preferred Units and 104.8 million, or 97.8%, of the Common Units in the Operating Partnership. Limited partners owned the remaining 2.4 million Common Units. Generally, the Operating Partnership is obligated to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company, at its option, may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable.

The Company was incorporated in Maryland in 1994. The Operating Partnership was formed in North Carolina in 1994. Our executive offices are located at 150 Fayetteville Street, Suite 1400, Raleigh, NC 27601, and our telephone number is (919) 872-4924.

Our primary business is the operation, acquisition and development of office properties. There are no material inter-segment transactions. See Note 15 to our Consolidated Financial Statements for a summary of the rental and other revenues, net operating income and assets for each reportable segment.

Our website is www.highwoods.com. In addition to this Annual Report, all quarterly and current reports, proxy statements, interactive data and other information are made available, without charge, on our website as soon as reasonably practicable after they are filed or furnished with the Securities and Exchange Commission (“SEC”). Information on our website is not considered part of this Annual Report.

During 2022, the Company filed unqualified Section 303A certifications with the NYSE. The Company and the Operating Partnership have also filed the CEO and CFO certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

### Our Strategy

We are in the work-placemaking business. 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 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. BBDs are highly-energized and amenitized workplace locations that enhance our customers’ ability to attract and retain talent. They are both urban and suburban. Providing the most talent-supportive workplace options in these environments is core to our work-placemaking strategy.

Our investment strategy is to generate attractive and sustainable returns over the long term for our stockholders by developing, acquiring and owning a portfolio of high-quality, differentiated office buildings in the BBDs of our core markets. 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 out of those properties that no longer meet our criteria.

Since the beginning of 2019, we have acquired (on a wholly-owned or joint venture basis) 4.0 million square feet of trophy office assets for a total gross investment of $1.9 billion, placed in service 2.1 million square feet of highly pre-leased new office development for a total gross investment of $762.0 million and sold 7.1 million square feet of non-core assets for $1.1 billion. As of December 31, 2022, our wholly-owned and joint venture development pipeline consisted of in-process developments with a total anticipated gross investment of $928.6 million. During this timeframe, we have completed our exit from Greensboro and Memphis, announced our plan to exit Pittsburgh and entered Charlotte and Dallas, two higher-growth markets.

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**Geographic Diversification.** Our core portfolio consists primarily of office properties in Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond and Tampa. We do not believe that our operations are significantly dependent upon any particular geographic market.

![img-2.jpeg](img-2.jpeg)

**Conservative and Flexible Balance Sheet.** We are committed to maintaining a conservative and flexible balance sheet with access to ample liquidity, multiple sources of debt and equity capital and sufficient availability under our revolving credit facility to fund our short and long-term liquidity requirements. Our balance sheet also allows us to proactively assure our existing and prospective customers that we are able to fund tenant improvements and maintain our properties in good condition while retaining the flexibility to capitalize on favorable development and acquisition opportunities as they arise.

### Competition

Our properties compete for customers with similar properties located in our markets primarily on the basis of location, rent, services provided and the design, quality and condition of the facilities. We also compete with other domestic and foreign REITs, financial institutions, pension funds, partnerships, individual investors and others when attempting to acquire, develop and operate properties.

### Environmental Resiliency

We are firmly committed to our intrinsic and societal responsibility to routinely minimize all environmental impacts resulting from the development and operation of our properties. Our plan is to continue minimizing our energy intensity, carbon emissions and water consumption and strive to mitigate pollution, ensure environmental compliance and create healthy and productive workspaces for our customers and communities. To support and advance the environmental component of our long-term resiliency initiatives, we have formed a management-level corporate resiliency team that is overseen by the investment committee of the Company's Board of Directors. The corporate resiliency team, comprised of a diverse group of disciplines including executive leadership, is charged with refining our long-term resiliency strategy, driving performance improvements across our portfolio and establishing and tracking progress towards goals. More information regarding our sustainability strategy and progress towards reaching our target goals is available in the Company's Proxy Statement filed in connection with our annual meeting of stockholders and in our annual corporate resiliency report that can be found under the 'Service Not Space/Sustainability' section of our website. Information on our website is not considered part of this Annual Report.

### Government Regulation

We are subject to laws, rules and regulations of the United States and the states and local municipalities in which we operate, including laws and regulations relating to environmental protection and human health and safety. Compliance with these laws, rules and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations and competitive position as compared to prior periods. For more information about environmental laws and regulations, see 'Item 1A. Risk Factors - Risks Related to our Operations - Costs of complying with governmental laws and regulations may adversely affect our results of operations.'

### Information Security

We face risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology networks and related systems. The audit committee of the Company's Board of Directors is responsible for overseeing management's risk assessment and risk management processes designed to

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monitor and control information security risk. Management, including the Company's chief information officer, regularly briefs the audit committee on information security matters. These briefings occur as often as needed, but in no event less than once a year. The Company's chief information officer also regularly briefs management's information technology steering committee, which includes the CEO and CFO.

We have adopted and implemented an approach to identify and mitigate information security risks that we believe is commercially reasonable for real estate companies, including some of the best practices of the National Institute of Standards and Technology cyber security framework. Since January 1, 2018, we have not experienced any information security breaches that resulted in any financial loss. We have a cyber risk insurance policy designed to help us mitigate risk exposure by offsetting costs involved with recovery and remediation after an information security breach or similar event. We regularly engage independent third parties to test our information security processes and systems as part of our overall enterprise risk management. We regularly conduct information security training to ensure all employees are aware of information security risks and to enable them to take steps to mitigate such risks. As part of this program, we also take reasonable steps to ensure any employee who may come into possession of confidential financial or health information has received appropriate information security awareness training.

## Human Capital Resources

We focus our real estate activities in markets where we have extensive local knowledge and own a significant amount of assets. As a result, we operate division offices in Atlanta, Nashville, Orlando, Raleigh, Richmond and Tampa, which are led by seasoned real estate professionals with significant commercial real estate experience managing across multiple economic cycles. Over the long-term, we plan to open division offices in Charlotte and Dallas. Shared corporate services, such as accounting, technology, development, asset management, marketing, human resources, legal and tax, are primarily based in Raleigh. Our senior leadership team, led by our CEO, is based in Raleigh and oversees all of the Company's operations.

**Fully-Integrated.** Unlike some other REITs, which outsource the leasing, management, maintenance and/or customer service of their properties entirely to third parties, we are a fully-integrated REIT that generally staffs the leasing, management, maintenance and customer service of our own portfolio. We believe being a fully-integrated REIT is in the best long-term interests of our stockholders for a number of reasons:

- • in-house services generally allow us to better anticipate and respond to the many real-time demands of our existing and potential customer base;
- • we are able to provide our customers with more cost-effective services such as build-to-suit construction and space modification, including tenant improvements and expansions;
- • the depth and breadth of our capabilities and resources provide us with market information not generally available;
- • operating efficiencies achieved through our fully-integrated organization provide a competitive advantage in servicing our properties, retaining existing customers and attracting new customers;
- • we can ensure the consistent deployment of a comprehensive preventative maintenance program;
- • our established detailed service request process creates chain of custody for a customer request and tracks status and response time, which enables proactive identification of any underperforming equipment and vital reconnaissance for process improvement and leverage when specifying all aspects of any new construction; and
- • our first-hand relationships with our customers lead to better customer service and often result in customers seeking renewals and additional space.

Above all, being a fully-integrated REIT across these diverse functional areas gives us the benefit of engaging and responding to our customers' needs as an owner versus a vendor. We believe this distinction, a core component of our value proposition, translates into improved customer service and higher customer retention.

We had 345 full-time employees as of December 31, 2022, three fewer than we had as of December 31, 2021. Over the past three years, our average annual turnover rate was 14%, substantially lower than the average national industry turnover rate of 24.3% as reported by the Bureau of Labor Statistics. Our turnover rate was 21% for 2022 largely due to the continued volatility in the job markets in the aftermath of the COVID-19 pandemic. However, this was lower than the average national industry turnover rate of 25.8% and we have generally backfilled most of these positions. Moreover, through our efforts in

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providing internship and cooperative education opportunities for future real estate professionals, we have identified a pool of talented professionals capable of filling future hiring needs. As of December 31, 2022, the average tenure of our employees was 10 years and the average age was 49 years.

Approximately 69% of our employees work in one of our division offices, most of which are directly involved in the management and maintenance of our portfolio. These include property managers, maintenance engineers and technicians, HVAC technicians and project managers. Personnel salaries and related costs of employees directly involved in the management and maintenance of our portfolio are allocated to our portfolio and recorded as rental property and other expenses. Approximately 2% of our employees work in our corporate development department and are directly involved in our development pipeline. When applicable, personnel salaries and related costs of such development employees are capitalized as a development expenditure. Approximately 3% of our employees are leasing professionals principally responsible for leasing our portfolio. When applicable, commissions and related costs of such leasing employees are capitalized as a leasing expenditure. Generally, all other employee costs are recorded as general and administrative expenses. In 2022, the total cost of our workforce, including salaries, commissions, bonuses, equity and non-equity incentive compensation and employee benefits was approximately $61 million.

We continually conduct risk assessments of our human capital needs. Additionally, we prioritize succession planning across various levels of our company to ensure seamless transitions as employees are promoted, retire or otherwise depart from their current positions. One of our most significant human capital risks, which has been identified by many employers in our markets and throughout the country, concerns an increasing shortage of trade professionals in the future, as there are fewer younger trade professionals entering the workforce to replace retiring workers. Approximately 33% of our employees are highly specialized and skilled trade professionals, such as maintenance engineers and technicians and HVAC technicians. The average age of our trade professionals is 51 years, which is approximately four years older than the average age of the remainder of our employee base. To proactively combat the potential future shortage of skilled trade professionals, we have partnered with local trade schools in some of our markets to implement an apprenticeship program to encourage and incentivize younger workers to obtain the technical skills necessary to become a trade professional. In turn, we hope this program will create a pipeline of future maintenance engineers and technicians and HVAC technicians to join our company.

**Total Rewards.** We strive to provide career opportunities in an energized, inclusive and collaborative environment tailored to retain, attract and reward highly performing employees. We do so in a culture built on the foundations of collegiality, teamwork, hard work, humility, creativity, humor, respect, acceptance, expertise and dedication to each other, our stockholders and our customers.

Our total rewards program, which includes compensation and comprehensive benefits, is crafted to provide fair and competitive pay, insurance plans and other programs to facilitate an overall work-life balance. The program is designed to incentivize and reward employees and emphasize our commitment to exemplary work.

Our total rewards program is constructed to meet certain objectives, such as:

- Competitiveness: Compensate with fair pay for comparable jobs within the current labor market in which we compete for talent (none of our full-time employees earns less than $15.00 per hour);
- Fairness: Reward positive and successful achievements through a consistent pay-for-performance approach administered throughout our company, including fair and equitable pay for all employees;
- Career: Communicate performance expectations and provide career enrichment and/or advancement opportunities to promote our long-term commitment to employees;
- Respect: Support a diverse and accepting team striving to maintain balance between career and personal life; and
- Culture: Create and preserve an environment where employees are acknowledged, honored and rewarded for hard work, creativity, energy, collegiality, teamwork, initiative and a measured drive to achieve all in an honest and respectful manner.

In addition to offering competitive salaries and wages, we offer comprehensive, locally relevant and innovative benefits to all eligible employees. These include, among other benefits:

- Comprehensive health insurance coverage;

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- Attractive paid time off, including up to 25 vacation days (depending on tenure), two personal holidays, nine company-wide holidays, one volunteer day, sick leave and parental leave for all new caregivers;
- Competitive match on contributions to our 401(k) retirement savings plan, in which over 95% of our employees participate; and
- 15% discount on purchasing Common Stock through our employee stock purchase plan, in which nearly 35% of our employees participate.

All employees are paid a base salary. Nearly 50% of employees are eligible to receive an annual bonus, which usually ranges from 5% to 30% of the employee's base salary. All employees are also eligible to receive a discretionary bonus from time to time to incentivize and reward excellent performance. Approximately 15% to 30% of employees typically receive a discretionary bonus each year, which usually ranges from $500 to $2,000.

Approximately 8% of our employees, including officers, are also eligible to receive long-term equity incentive compensation. Equity incentive awards provide such employees with an ownership interest in our company and a direct and demonstrable stake in our success. Equity incentive awards for non-officer employees are comprised of time-based restricted stock, which serves as a retention tool to deter participants from seeking other employment opportunities. Time-based restricted stock vests ratably on an annual basis, generally over a four-year term, and if an employee receiving such stock leaves, unvested shares are immediately forfeited except in the event of death, disability or as otherwise provided in our retirement plan.

Other than as described below, we have no compensation policies or programs that reward employees solely on a transaction-specific basis.

We have a development cash incentive plan pursuant to which all employees, excluding executive officers, can receive a cash payout from a development incentive pool. The amount of funds available to be earned under the plan depends upon the timing and cash yields of a qualifying development project and is included in the pro forma budget for the project. Payouts under the plan have generally ranged from $1,000 to $10,000 but could be higher under certain circumstances.

We also pay our in-house leasing professionals commissions for signed leases. We believe such commissions, which are paid in cash, are comparable to what we would pay in commission fees to outside brokers.

We do not believe that we have compensation policies or practices that create risks that are reasonably likely to have a material adverse effect on our company. For example, the development cash incentive program does not create an inappropriate risk because all development projects (inclusive of any such incentive compensation) must be approved in advance by our executive officers and, in most cases, the full board or the investment committee of our board, none of whom are eligible to receive such incentives. Likewise, the payment of leasing commissions does not create an inappropriate risk because amounts payable are derived from net effective cash rents (which deducts leasing capital expenditures and operating expenses) and leases must be executed by an officer of our company, none of whom are eligible to receive such commissions. Generally, lease transactions of a particular size or that contain terms or conditions that exceed certain guidelines also must be approved in advance by our senior leadership team. Additionally, we have an internal guideline whereby customers that account for more than 3% of our annualized revenues are periodically reviewed with the board. As of December 31, 2022, only Bank of America (3.8%) and Asurion (3.6%) accounted for more than 3% of our annualized GAAP revenues.

**Health and Safety.** Primarily because many of our employees are involved with the management and maintenance of our own portfolio, we have robust health and safety processes and training protocols designed to mitigate workplace incidents, risks and hazards. Among other things, we routinely conduct:

- regulatory-required training of affected employees regarding OSHA compliance;
- training on fire and life safety systems affecting our buildings and building systems;
- training on emergency response procedures affecting our people, our buildings and our customers;
- simulations and table-top exercises to ensure our crisis management and business continuity plans are effective; and
- training on pandemic safety affecting our people, our buildings and our customers.

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**Employee Well-being.** We believe a resilient portfolio starts with having resilient employees. Our well-being initiatives focus on the “whole person,” as we are concerned not only for the on-the-job health and safety of our employees, but also for their ability to lead healthy and productive personal lives. To that end, we have established wellness committees in each of our divisions and have a “HIW Well-being” program to promote holistic well-being. Our health benefit plans are designed to improve the overall health of our employees by decreasing costs and improving access to quality healthcare.

**Employee Empowerment.** While we own and operate a collection of high-quality office assets, we believe our team of dedicated real estate professionals is also critically important to our success. Over the past five years, by simplifying and streamlining our operations, we have reduced our overall headcount by nearly 100. This right-sizing of our employee base has created, and will continue to create, opportunities for individual career growth. The Company has long demonstrated a commitment to individual career growth. For example, nearly one-third of our current employees have had significant career advancement during their tenure with us. Through periodic career conversations that are held at least once a year with our employees, we create an environment that fosters and encourages an “ownership” mentality throughout our company and empowers our employees to continuously seek new and better ways of doing business.

In addition to supporting the career growth of our employees, we also seek to grow as an employer. We periodically solicit feedback from our employees through the use of employee engagement surveys to monitor and improve employee satisfaction in order to retain and recruit a talented workforce. During 2021, we surveyed all of our employees with respect to diversity and inclusion and many of our employees with respect to work environment satisfaction. During 2022, we conducted an engagement survey.

**Diversity and Inclusion.** Diversity and inclusion is a core value for our company. We strive to create a diverse and inclusive environment in an authentic and meaningful way. We are an equal opportunity employer, with all qualified applicants receiving consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability or protected veteran status. As of December 31, 2022, 36% of our employees were female and 26% of our employees were persons of color. Of the new employees hired during 2022, 39% were female and 39% were persons of color.

We have a robust diversity and inclusion program, called the “Heart of Highwoods,” with the overall goal of creating opportunities for all people in the commercial real estate industry, in the local communities in which we operate and among our own teammates at the Company. First, like all federal government contractors, we have established goals and methods to be sure we are providing opportunities to small and minority vendors to compete for work with our company. Second, we are providing opportunities for our employees to volunteer within their communities through the recently added paid volunteer time off benefit and an additional paid holiday on Martin Luther King, Jr. Day, a national day of service. Third, we have a diversity and inclusion group, called the “DIG,” made up of employees who advocate for diversity and inclusion throughout our company. In 2022, the DIG focused on creating relationships with local schools that support disadvantaged and minority students, creating clear Company-wide communication, encouraging personal career growth and continuing to expand and diversify our vendor base.

## ITEM 1A. RISK FACTORS

An investment in our securities involves various risks. Investors should carefully consider the following risk factors in conjunction with the other information contained in this Annual Report before trading in our securities. If any of these risks actually occur, our business, results of operations, prospects and financial condition could be adversely affected.

### 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.** The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. Most countries, including the United States, reacted to the pandemic by restricting many business and travel activities, mandating the partial or complete closures of certain business and schools and taking other actions to mitigate the spread of the virus, most of which had a disruptive effect on economic activity, including the use of and demand for office space. Many private businesses, including some of our customers, continue to permit some or all of their employees to work from home some or all of the time even after the pandemic has subsided. Potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements prompted initially by the pandemic, could materially and negatively impact the future demand for office space over the long-term.

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**Adverse economic conditions in our markets that negatively impact the demand for office space, such as high unemployment, may result in lower occupancy and rental rates for our portfolio, which would adversely affect our results of operations.** 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.

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. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower or negative economic growth, when new vacancies tend to outpace our ability to lease space. In addition, the timing of changes in occupancy levels tends to lag the timing of changes in overall economic activity and employment levels. Occupancy in our office portfolio decreased from 91.2% as of December 31, 2021 to 91.0% as of December 31, 2022. Average occupancy in future periods will be lower, perhaps significantly lower, if potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, result in reduced future demand for office space over the long-term. For additional information regarding our average occupancy and rental rate trends over the past five years, see “Item 2. Properties.” Lower rental revenues that result from lower average occupancy or lower rental rates with respect to our same property portfolio will adversely affect our results of operations unless offset by the impact of any newly acquired or developed properties or lower variable operating expenses, general and administrative expenses and/or interest expense.

**We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to the existing leases, or we may spend significant capital in our efforts to renew and re-let space, which may adversely affect our results of operations.** In addition to seeking to increase our average occupancy by leasing current vacant space, we also concentrate our leasing efforts on renewing existing leases. Because we compete with a number of other developers, owners and operators of office and office-oriented, mixed-use properties, we may be unable to renew leases with our existing customers and, if our current customers do not renew their leases, we may be unable to re-let the space to new customers. To the extent that we are able to renew existing leases or re-let such space to new customers, heightened competition resulting from adverse market conditions may require us to utilize rent concessions and tenant improvements to a greater extent than we anticipate or have historically. Further, changes in space utilization by our customers due to technology, economic conditions, business culture and/or a need for less space due to the increasing prevalence of work-from-home arrangements by certain employers also affect the occupancy of our properties. As a result, customers may seek to downsize by leasing less space from us upon any renewal.

If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our customers, we may lose existing and potential customers, and we may be pressured to reduce our rental rates below those we currently charge in order to retain customers upon expiration of their existing leases. Even if our customers renew their leases or we are able to re-let the space, the terms and other costs of renewal or re-letting, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, reduced rental rates and other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures. From time to time, we may also agree to modify the terms of existing leases to incentivize customers to renew their leases. If we are unable to renew leases or re-let space in a reasonable time, or if our rental rates decline or our tenant improvement costs, leasing commissions or other costs increase, our financial condition and results of operations would be adversely affected.

**Difficulties or delays in renewing leases with large customers or re-leasing space vacated by large customers could materially impact our results of operations.** Our 20 largest customers account for a meaningful portion of our revenues. See “Item 2. Properties - Customers” and “Item 2. Properties - Lease Expirations.” There are no assurances that these customers, or any of our other large customers, will renew all or any of their space upon expiration of their current leases.

**Some of our leases provide customers with the right to terminate their leases early, which could have an adverse effect on our financial condition and results of operations.** Certain of our leases permit our customers to terminate their leases as to all or a portion of the leased premises prior to their stated lease expiration dates under certain circumstances, such as providing notice by a certain date and, in many cases, paying a termination fee. To the extent that our customers exercise early termination rights, our results of operations will be adversely affected, and we can provide no assurances that we will be able to generate an equivalent amount of net effective rent by leasing the vacated space to others.

**Our results of operations and financial condition could be adversely affected by financial difficulties experienced by a major customer, or by a number of smaller customers, including bankruptcies, insolvencies or general downturns in business.** Our operations depend on the financial stability of our customers. A default by a significant customer on its lease payments would cause us to lose the revenue and any other amounts due under such lease. In the event of a customer default or

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## ITEM 2. PROPERTIES

### Properties

The following table sets forth information about our portfolio by geographic location as of December 31, 2022:

| Market | Rentable Square Feet | Occupancy | Percentage of Annualized GAAP Rental Revenue (1) |
| --- | --- | --- | --- |
| Raleigh | 6,335,000 | 92.0% | 22.3% |
| Nashville | 5,230,000 | 95.0 | 21.6 |
| Atlanta | 4,926,000 | 88.3 | 16.8 |
| Tampa | 3,340,000 | 87.1 | 11.7 |
| Charlotte | 1,970,000 | 94.3 | 10.1 |
| Orlando | 1,790,000 | 88.9 | 6.0 |
| Richmond | 1,844,000 | 89.9 | 4.6 |
| Other | 2,155,000 | 90.9 | 6.9 |
| Total | 27,590,000 | 91.0% | 100.0% |

(1) Annualized GAAP Rental Revenue is GAAP rental revenue (base rent plus cost recovery income, including straight-line rent) from our office properties for the month of December 2022 multiplied by 12.

The following table sets forth the net changes in rentable square footage of our portfolio:

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in thousands) |  |  |
| Acquisitions | 367 | 2,266 | - |
| Developments Placed In-Service | 263 | 897 | - |
| Remeasurements/Other | (11) | (3) | (40) |
| Dispositions | (437) | (1,661) | (4,489) |
| Net Change in Rentable Square Footage | 182 | 1,499 | (4,529) |

The following table sets forth operating information about our portfolio:

|  | Average Occupancy | Annualized GAAP Rent Per Square Foot (1) | Annualized Cash Rent Per Square Foot (2) |
| --- | --- | --- | --- |
| 2018 | 91.7% | $24.68 | $24.06 |
| 2019 | 91.4% | $26.46 | $25.06 |
| 2020 | 90.7% | $29.23 | $28.21 |
| 2021 | 90.0% | $30.75 | $29.63 |
| 2022 | 90.8% | $31.89 | $30.51 |

(1) Annualized GAAP Rent Per Square Foot is rental revenue (base rent plus cost recovery income, including straight-line rent) for the month of December of the respective year multiplied by 12, divided by total occupied rentable square footage.

(2) Annualized Cash Rent Per Square Foot is cash rental revenue (base rent plus cost recovery income, excluding straight-line rent) for the month of December of the respective year multiplied by 12, divided by total occupied rentable square footage.

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## Customers

The following table sets forth information concerning the 20 largest customers in our portfolio as of December 31, 2022:

| Customer | Rentable Square Feet | Annualized GAAP Rental Revenue (1) (in thousands) | Percent of Total Annualized GAAP Rental Revenue (1) | Weighted Average Remaining Lease Term in Years |
| --- | --- | --- | --- | --- |
| Bank of America | 652,313 | $30,317 | 3.79% | 10.9 |
| Asurion | 543,794 | 28,955 | 3.62 | 13.8 |
| Federal Government | 867,006 | 23,907 | 2.99 | 4.4 |
| Bridgestone Americas | 506,128 | 20,277 | 2.53 | 14.7 |
| Metropolitan Life Insurance | 667,228 | 19,777 | 2.47 | 8.1 |
| PPG Industries | 370,927 | 11,177 | 1.4 | 8.5 |
| Mars Petcare | 223,700 | 9,979 | 1.25 | 8.4 |
| Vanderbilt University | 294,389 | 8,986 | 1.12 | 3.4 |
| EQT | 317,052 | 7,848 | 0.98 | 1.8 |
| Bass, Berry & Sims | 213,951 | 7,420 | 0.93 | 2.1 |
| Albemarle Corporation | 162,368 | 6,972 | 0.87 | 11.1 |
| Deloitte & Touche | 158,914 | 6,763 | 0.84 | 7.1 |
| Tivity | 263,598 | 6,753 | 0.84 | 0.2 |
| Novelis | 168,949 | 5,953 | 0.74 | 1.7 |
| Lifepoint Corporate Services | 202,991 | 5,579 | 0.7 | 6.3 |
| State of Georgia | 288,443 | 5,560 | 0.69 | 2.0 |
| Regus | 169,833 | 5,528 | 0.69 | 5.8 |
| J.P. Morgan Chase & Co. | 180,424 | 5,482 | 0.68 | 5.4 |
| The CapFinancial Group, LLC | 120,847 | 5,395 | 0.67 | 10.6 |
| PNC Bank | 162,223 | 5,384 | 0.67 | 4.9 |
| Total | 6,535,078 | $228,012 | 28.47% | 8.1 |

(1) Annualized GAAP Rental Revenue is GAAP rental revenue (base rent plus cost recovery income, including straight-line rent) for the month of December 2022 multiplied by 12.

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## Lease Expirations

The following table sets forth scheduled lease expirations for existing leases in our portfolio as of December 31, 2022:

| Lease Expiring (1) | Number of Leases Expiring | Rentable Square Feet Subject to Expiring Leases | Percentage of Leased Square Footage Represented by Expiring Leases | Annualized GAAP Rental Revenue Under Expiring Leases (2) | Average Annual GAAP Rental Rate Per Square Foot for Expirations | Percent of Annualized GAAP Rental Revenue Represented by Expiring Leases (2) |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  | (in thousands) |  |  |
| 2023 (3) | 386 | 2,172,820 | 8.7% | $64,732 | $29.79 | 8.4% |
| 2024 | 331 | 2,735,421 | 10.9 | 85,534 | 31.27 | 11.2 |
| 2025 | 416 | 3,407,048 | 13.6 | 105,196 | 30.88 | 13.7 |
| 2026 | 267 | 2,278,837 | 9.1 | 69,180 | 30.36 | 9.0 |
| 2027 | 261 | 2,400,708 | 9.6 | 71,064 | 29.60 | 9.3 |
| 2028 | 151 | 2,236,063 | 8.9 | 66,430 | 29.71 | 8.7 |
| 2029 | 100 | 1,362,925 | 5.4 | 38,568 | 28.30 | 5.0 |
| 2030 | 138 | 1,850,762 | 7.3 | 47,536 | 25.68 | 6.2 |
| 2031 | 56 | 2,126,352 | 8.5 | 66,191 | 31.13 | 8.6 |
| 2032 | 47 | 714,103 | 2.8 | 24,680 | 34.56 | 3.2 |
| Thereafter | 114 | 3,831,091 | 15.2 | 127,127 | 33.18 | 16.7 |
|  | 2,267 | 25,116,130 | 100.0% | $766,238 | $30.51 | 100.0% |

(1) Expirations that have been renewed are reflected above based on the renewal expiration date. Expirations include leases related to completed not stabilized development properties but exclude leases related to developments in-process.

(2) Annualized GAAP Rental Revenue is GAAP rental revenue (base rent plus cost recovery income, including straight-line rent) for the month of December 2022 multiplied by 12.

(3) Includes 39,000 rentable square feet of leases that are on a month-to-month basis, which represent 0.2% of total annualized GAAP rental revenue.

## In-Process Development

As of December 31, 2022, we were developing 1.6 million rentable square feet of office properties. The following table summarizes these announced and in-process office developments:

| Property | Market | Own % | Consolidated (Y/N) | Rentable Square Feet | Anticipated Total Investment | Investment as of December 31, 2022 | Pre Leased % | Estimated Completion | Estimated Stabilization |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  | ($ in thousands) |  |  |  |  |
| 23Springs (1) | Dallas | 50.0% | N | 642,000 | $460,000 | $80,047 | 17.1% | 1Q 25 | 1Q 28 |
| Granite Park Six (1) | Dallas | 50.0% | N | 422,000 | 200,000 | 98,068 | 12.4 | 4Q 23 | 1Q 26 |
| GlenLake III Office & Retail (2) | Raleigh | 100.0% | Y | 218,250 | 94,600 | 47,177 | 14.6 | 3Q 23 | 1Q 26 |
| Midtown East | Tampa | 50.0% | N | 143,000 | 83,000 | 11,949 | 2.1 | 1Q 25 | 2Q 26 |
| 2827 Peachtree | Atlanta | 50.0% | N | 135,300 | 79,000 | 32,447 | 75.3 | 3Q 23 | 1Q 25 |
| Four Morrocroft (2)(3) | Charlotte | 100.0% | Y | 18,000 | 12,000 | 713 | 100.0 | 2Q 24 | 2Q 24 |
|  |  |  |  | 1,578,550 | $928,600 | $270,401 | 20.1% |  |  |

(1) Investment includes capitalized interest only on the construction loan portion of the project.

(2) Investment includes deferred lease commissions which are classified in deferred leasing costs on our Consolidated Balance Sheet.

(3) Recorded on our Consolidated Balance Sheet as land held for development, not development in-process.

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## Land Held for Development

As of December 31, 2022, we estimate that we can develop approximately 4.9 million rentable square feet of office space on the wholly-owned development land that we consider core assets for our future development needs. Our core office development land is zoned and available for development, and nearly all of the land has utility infrastructure in place. We believe that our commercially zoned and unencumbered land gives us a development advantage over other commercial office development companies in many of our markets. We also own additional development land on which we or third parties can develop approximately 2.8 million square feet of mixed-use real estate projects, including retail and multi-family.

## Joint Venture Investments

The following table sets forth information about our in-service joint venture investments by geographic location as of December 31, 2022:

| Market | Rentable Square Feet | Weighted Average Ownership Interest (1) | Occupancy |
| --- | --- | --- | --- |
| Dallas | 542,000 | 50.0% | 95.6% |
| Kansas City (2) | 292,000 | 50.0 | 85.1 |
| Richmond (3) | 345,000 | 50.0 | 94.9 |
| Tampa (3) | 152,000 | 80.0 | 88.2 |
| Total | 1,331,000 | 53.4% | 92.2% |

(1) Weighted Average Ownership Interest is calculated using Rentable Square Feet.

(2) Excluding our 26.5% ownership interest in a real estate brokerage services company.

(3) This joint venture is consolidated.

In addition, we own 50.0% interests in 2827 Peachtree, Granite Park Six, 23Springs and Midtown East, four unconsolidated joint ventures. See 'Item 2. Properties - In-Process Development.'

## ITEM 3. LEGAL PROCEEDINGS

We are from time to time a party to a variety of legal proceedings, claims and assessments arising in the ordinary course of our business. We regularly assess the liabilities and contingencies in connection with these matters based on the latest information available. For those matters where it is probable that we have incurred or will incur a loss and the loss or range of loss can be reasonably estimated, the estimated loss is accrued and charged to income in our Consolidated Financial Statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, a reasonable estimate of liability, if any, cannot be made. Based on the current expected outcome of such matters, none of these proceedings, claims or assessments is expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.

## ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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## ITEM X. INFORMATION ABOUT OUR EXECUTIVE OFFICERS

The Company is the sole general partner of the Operating Partnership. The following table sets forth information with respect to the Company’s executive officers:

| Name | Age | Position and Background |
| --- | --- | --- |
| Theodore J. Klinck | 57 | Director, President and Chief Executive Officer. Mr. Klinck became a director and our chief executive officer in September 2019. Prior to that, Mr. Klinck was our president and chief operating officer since November 2018, our executive vice president and chief operating and investment officer from September 2015 to November 2018 and was senior vice president and chief investment officer from March 2012 to August 2015. Before joining us, Mr. Klinck served as principal and chief investment officer with Goddard Investment Group, a privately owned real estate investment firm. Previously, Mr. Klinck had been a managing director at Morgan Stanley Real Estate. Mr. Klinck is a member of NAREIT’s Advisory Board, Raleigh Chamber Board and Chair of the First Tee of the Triangle. |
| Brian M. Leary | 48 | Executive Vice President and Chief Operating Officer. Mr. Leary became chief operating officer in July 2019. Previously, Mr. Leary served as president of the commercial and mixed-use business unit of Crescent Communities since 2014. Prior to joining Crescent, Mr. Leary held senior management positions with Jacoby Development, Inc., Atlanta Beltline, Inc., AIG Global Real Estate, Atlantic Station, LLC and Central Atlanta Progress. |
| Brendan C. Maiorana | 47 | Executive Vice President and Chief Financial Officer. Mr. Maiorana became executive vice president of finance in July 2019 and assumed the roles of treasurer in January 2021 and chief financial officer in January 2022. Prior to that, Mr. Maiorana was our senior vice president of finance and investor relations since May 2016. Prior to joining Highwoods, Mr. Maiorana spent 11 years in equity research at Wells Fargo Securities, starting as an associate equity research analyst. Prior to that, Mr. Maiorana worked four years at Ernst & Young LLP. |
| Jeffrey D. Miller | 52 | Executive Vice President, General Counsel and Secretary. Prior to joining us in March 2007, Mr. Miller was a partner with DLA Piper US, LLP, where he practiced since 2005. Previously, Mr. Miller had been a partner with Alston & Bird LLP. Mr. Miller is admitted to practice in North Carolina. Mr. Miller served as lead independent director of Hatteras Financial Corp., a publicly-traded mortgage REIT (NYSE:HTS), prior to its merger with Annaly Capital Management, Inc. (NYSE:NLY) in July 2016. Mr. Miller is a trustee of Ravenscroft School and a member of the Wake Forest School of Law Board of Visitors. |

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## PART II

### ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock is traded on the NYSE under the symbol 'HIW.' On December 31, 2022, the Company had 623 common stockholders of record. There is no public trading market for the Common Units. On December 31, 2022, the Operating Partnership had 100 holders of record of Common Units (other than the Company). As of December 31, 2022, there were 105.2 million shares of Common Stock outstanding and 2.4 million Common Units outstanding not owned by the Company.

For information regarding our dividend payment history as well as a discussion of the factors that influence the decisions of the Company's Board of Directors regarding dividends and distributions, see 'Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Dividends and Distributions.'

The following total return performance graph compares the performance of our Common Stock to the S&P 500 Index and the FTSE NAREIT All Equity REITs Index. The total return performance graph assumes an investment of $100 in our Common Stock and the two indices on December 31, 2017 and further assumes the reinvestment of all dividends. The FTSE NAREIT All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. equity REITs. Constituents of the Index include all tax-qualified REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property. Total return performance is not necessarily indicative of future results.

![img-0.jpeg](img-0.jpeg)

| Index | For the Period from December 31, 2017 to December 31, |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | 2018 | 2019 | 2020 | 2021 | 2022 |
| Highwoods Properties, Inc. | 79.16 | 104.36 | 88.95 | 104.63 | 69.50 |
| S&P 500 Index | 95.62 | 125.72 | 148.85 | 191.58 | 156.88 |
| FTSE NAREIT All Equity REITs Index | 95.96 | 123.46 | 117.14 | 165.51 | 124.22 |

The performance graph above is being furnished as part of this Annual Report solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish the Company's stockholders with such information and, therefore, is not deemed to be filed, or incorporated by reference in any filing, by the Company or the Operating Partnership under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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The Company has a Dividend Reinvestment and Stock Purchase Plan (“DRIP”) under which holders of Common Stock may elect to automatically reinvest their dividends in additional shares of Common Stock and make optional cash payments for additional shares of Common Stock. The Company satisfies its DRIP obligations by instructing the DRIP administrator to purchase Common Stock in the open market.

The Company has an Employee Stock Purchase Plan (“ESPP”) pursuant to which employees may contribute up to 25% of their cash compensation for the purchase of Common Stock. At the end of each quarter, each participant’s account balance, which includes accumulated dividends, is applied to acquire shares of Common Stock at a cost that is calculated at 85% of the average closing price on the NYSE on the five consecutive days preceding the last day of the quarter. Generally, shares purchased under the ESPP must be held at least one year. The Company satisfies its ESPP obligations by issuing additional shares of Common Stock.

Information about the Company’s equity compensation plans and other related stockholder matters is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 16, 2023.

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# ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with the accompanying Consolidated Financial Statements and related notes contained elsewhere herein.

## Disclosure Regarding Forward-Looking Statements

Some of the information in this Annual Report may contain forward-looking statements. Such statements include, in particular, statements about our plans, strategies and prospects under this section and under the heading 'Item 1. Business.' You can identify forward-looking statements by our use of forward-looking terminology such as 'may,' 'will,' 'expect,' 'anticipate,' 'estimate,' 'continue' or other similar words. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that our plans, intentions or expectations will be achieved. 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:

- • 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;
- • we may not be able to lease or re-lease second generation space, defined as previously occupied space that becomes available for lease, quickly or on as favorable terms as old leases;
- • we may not be able to lease newly constructed buildings as quickly or on as favorable terms as originally anticipated;
- • we may not be able to complete development, acquisition, reinvestment, disposition or joint venture projects as quickly or on as favorable terms as anticipated;
- • development activity in our existing markets could result in an excessive supply relative to customer demand;
- • our markets may suffer declines in economic and/or office employment growth;
- • unanticipated increases in interest rates could increase our debt service costs;
- • unanticipated increases in operating expenses could negatively impact our operating results;
- • natural disasters and climate change could have an adverse impact on our cash flow and operating results;
- • we may not be able to meet our liquidity requirements or obtain capital on favorable terms to fund our working capital needs and growth initiatives or repay or refinance outstanding debt upon maturity; and
- • the Company could lose key executive officers.

This list of risks and uncertainties, however, is not intended to be exhaustive. You should also review the other cautionary statements we make in 'Item 1A. Risk Factors' set forth in this Annual Report. Given these uncertainties, you should not place undue reliance on forward-looking statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements to reflect any future events or circumstances or to reflect the occurrence of unanticipated events.

## Executive Summary

We are in the work-placemaking business. 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 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

27

communicate transparently with all stakeholders. We focus on owning and managing buildings in the most dynamic and vibrant BBDs. BBDs are highly-energized and amenitized workplace locations that enhance our customers' ability to attract and retain talent. They are both urban and suburban. Providing the most talent-supportive workplace options in these environments is core to our work-placemaking strategy.

Our investment strategy is to generate attractive and sustainable returns over the long term for our stockholders by developing, acquiring and owning a portfolio of high-quality, differentiated office buildings in the BBDs of our core markets. 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.

## Revenues

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.

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. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower or negative economic growth, when new vacancies tend to outpace our ability to lease space. Asset acquisitions, dispositions and new developments placed in service directly impact our rental revenues and could impact our average occupancy, depending upon the occupancy rate of the properties that are acquired, sold or placed in service. A further indicator of the predictability of future revenues is the expected lease expirations of our portfolio. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also concentrate our leasing efforts on renewing existing leases prior to expiration. For more information regarding our lease expirations, see 'Item 2. 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.

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. Annualized rental revenues from second generation leases expiring during any particular year are typically less than 15% of our total annual rental revenues. The following table sets forth information regarding second generation office leases signed during the fourth quarter of 2022 (we define second generation office leases as leases with new customers and renewals of existing customers in office space that has been previously occupied under our ownership and leases with respect to vacant space in acquired buildings):

|  | New | Renewal | All Office |
| --- | --- | --- | --- |
| Leased space (in rentable square feet) | 337,475 | 586,457 | 923,932 |
| Average term (in years - rentable square foot weighted) | 4.3 | 6.2 | 5.5 |
| Base rents (per rentable square foot) (1) | $33.69 | $32.98 | $33.24 |
| Rent concessions (per rentable square foot) (1) | (1.86) | (1.82) | (1.83) |
| GAAP rents (per rentable square foot) (1) | $31.83 | $31.16 | $31.41 |
| Tenant improvements (per rentable square foot) (1) | $3.44 | $3.47 | $3.46 |
| Leasing commissions (per rentable square foot) (1) | $1.10 | $0.97 | $1.02 |

(1) Weighted average per rentable square foot on an annual basis over the lease term.

Annual combined GAAP rents for new and renewal leases signed in the fourth quarter were $31.41 per rentable square foot, 9.0% higher compared to previous leases in the same office spaces.

We strive to maintain a diverse, stable and creditworthy customer base. 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

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December 31, 2022, only Bank of America (3.8%) and Asurion (3.6%) accounted for more than 3% of our annualized GAAP revenues. See “Item 2. Properties - Customers.”

## Expenses

Our expenses primarily consist of rental property expenses, depreciation and amortization, general and administrative expenses and interest expense. From time to time, expenses also include impairments of real estate assets. Rental property expenses are expenses associated with our ownership and operation of rental properties and include expenses that vary somewhat proportionately to occupancy and usage levels, such as janitorial services and utilities, and expenses that do not vary based on occupancy, such as property taxes and insurance. Depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year, unless we buy, place in service or sell assets, since our properties and related building and tenant improvement assets are depreciated on a straight-line basis over fixed lives. General and administrative expenses consist primarily of management and employee salaries and benefits, corporate overhead and short and long-term incentive compensation.

## Net Operating Income

Whether or not we record increasing net operating income (“NOI”) in our same property portfolio typically depends upon our ability to garner higher rental revenues, whether from higher average occupancy, higher GAAP rents per rentable square foot or higher cost recovery income, that exceed any corresponding growth in operating expenses. 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 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 $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.

## Cash Flows

In calculating net cash related to operating activities, depreciation and amortization, which are non-cash expenses, are added back to net income. We have historically generated a positive amount of cash from operating activities. From period to period, cash flow from operations depends primarily upon changes in our net income, as discussed more fully below under “Results of Operations,” changes in receivables and payables and net additions or decreases in our overall portfolio.

Net cash related to investing activities generally relates to capitalized costs incurred for leasing and major building improvements and our acquisition, development, disposition and joint venture activity. During periods of significant net acquisition and/or development activity, our cash used in such investing activities will generally exceed cash provided by investing activities, which typically consists of cash received upon the sale of properties and distributions from our joint ventures.

Net cash related to financing activities generally relates to distributions, incurrence and repayment of debt, and issuances, repurchases or redemptions of Common Stock, Common Units and Preferred Stock. We use a significant amount of our cash to fund distributions. Whether or not we have increases in the outstanding balances of debt during a period depends generally upon the net effect of our acquisition, disposition, development and joint venture activity. We generally use our revolving credit facility for daily working capital purposes, which means that during any given period, in order to minimize interest expense, we may record significant repayments and borrowings under our revolving credit facility.

For a discussion regarding dividends and distributions, see “Liquidity and Capital Resources - Dividends and Distributions.”

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