Financial Data and Key Metrics Changes - Core FFO per diluted share for Q3 2025 was $0.35, a decrease from $0.36 in Q3 2024, attributed to the sale of three projects and higher net interest expense, offset by growth in operations due to higher economic occupancy and rental rate growth [25][26][27] - FFO generated during Q3 2025 was approximately $26.5 million [26] - The company narrowed its 2025 annual core FFO guidance to a range of $1.40 to $1.42 per diluted share [28] Business Line Data and Key Metrics Changes - The company executed approximately 724,000 square feet of total leasing during the quarter, including over half a million square feet of new tenant leases, marking the largest amount of new tenant leasing in a single quarter in over a decade [9][10] - The weighted average starting cash rent was nearly $42 per square foot, unchanged from the previous quarter, with net effective rents increasing to $21.26 per square foot, reflecting a 2.5% increase [17][18] - The leasing capital spent was $6.76 per square foot, slightly up compared to the trailing 12 months [17] Market Data and Key Metrics Changes - Five of the operating markets experienced positive absorption, with Washington, D.C. and Boston being exceptions [5] - The overall leasing volume in the U.S. reached about 105 million square feet in Q3 2025, nearing the 2015-2019 national quarterly average of approximately 115 million square feet [5][6] - The out-of-service portfolio was over 50% leased and approaching 70% leased, with significant demand in Minneapolis and Orlando [11][20] Company Strategy and Development Direction - The company aims to strengthen its brand as the landlord of choice, driving leasing demand and increasing rental rates across its portfolio [8][31] - The strategy includes focusing on high-quality office spaces and enhancing service models to attract tenants [7][30] - The company is also looking to prune non-core assets while exploring acquisition opportunities in high-demand markets like Dallas [24][54] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving mid-single-digit FFO growth in 2026 and 2027, driven by strong leasing momentum and a robust pipeline [14][29] - The broader macro factors, along with successful portfolio repositioning, are expected to continue driving the company's ability to grow FFO organically [14] - Management noted that the office sector is turning a corner, with increased demand for high-quality spaces despite a generally uncertain economic outlook [6][10] Other Important Information - The company achieved a five-star rating and Green Star recognition from GRESB, placing it in the top decile of all participating listed U.S. companies [14] - The company has approximately $435 million of availability under its revolving line of credit and no final debt maturities until 2028 [27] Q&A Session Summary Question: Clarification on expansion versus contraction within the portfolio - Management noted that expansions exceeded contractions for five consecutive quarters, with 16 expansions versus two contractions in the last quarter, indicating a net positive of 40,000 square feet [36] Question: Conviction level for earnings growth next year - Management clarified that the projected earnings growth is based on organic growth within a static portfolio, assuming no acquisitions or refinancings [44] Question: Status of non-core asset dispositions - Management indicated that the market remains challenging for selling non-core assets, but they continue to focus on pruning these assets [54] Question: Details on the $75 million of cash rent pending - Management estimated that about 70% of the $75 million would be realized in 2026, with a significant portion expected to commence in the middle of the year [62] Question: Reconciliation of leasing demand with job market conditions - Management observed that despite layoffs, there is still strong demand for upgrading office space, as companies seek to enhance collaboration and innovation [65]

Investment Rating - The report indicates a positive outlook for the Australian office market, with prime yields stabilizing and an expectation of continued recovery, particularly in Sydney and Brisbane [1][20]. Core Insights - There is a notable improvement in sentiment within the office investment market, with significant transactions occurring primarily in Sydney, leading to stabilized prime yields for core assets [1][20]. - Net absorption across all CBD markets returned to positive territory in 2024, with a total of 81,000 sqm recorded nationally, indicating strong tenant demand, especially for high-quality assets with strong ESG credentials [2][30]. - Rental performance is improving, with Brisbane experiencing an 18.3% increase in net effective rents year-over-year, while Adelaide saw a 10.5% increase [3][48]. - The report highlights a divergence in performance by location, with major CBDs outperforming non-CBD markets, and a focus on high-quality, well-located premises [30][48]. Summary by Sections Leasing and Capital Markets - Prime yields have stabilized, particularly in Sydney, with significant deal volumes indicating a recovery in the market [1][20]. - The average prime yields remained unchanged in Sydney and Brisbane, confirming the stabilization of core asset values [20]. Demand and Absorption - Net absorption returned to growth, with all capital cities recording positive absorption except for Melbourne CBD [30]. - The demand for newly built products remains high, driven by occupiers focusing on high productivity and employee well-being [30]. Rental Performance - Brisbane led the rental growth with a 14.2% increase in net face rents, while Adelaide followed with a 9.1% increase [48]. - Sydney's average incentives decreased for the first time since 2019, indicating a shift in the rental market dynamics [48]. Vacancy Rates - The overall vacancy rate across Australian capital cities was 13.7% at the end of 2024, with Canberra and Brisbane having the lowest rates at 9.2% and 10.2%, respectively [39]. - The development pipeline in major CBDs is forecasted to deliver approximately 970,000 sqm of new supply over the next three years, which is expected to tighten leasing markets and drive rental growth [39].