• FFO (Funds From Operations): $0.90 per share for Q3 2024, with a $0.06 increase in the FFO outlook since the beginning of the year.
• Net Income: $14.6 million, or $0.14 per share for Q3 2024.
• Leasing Volume: 1.3 million square feet of new second-generation leases signed through the first three quarters of 2024.
• Leased Rate: Over 300 basis points higher than the in-service occupied rate of 88%.
• Development Pipeline: 49% leased, with a total of 1.6 million square feet and $514 million in projects.
• Non-Core Asset Sales: $84 million for the year, with an additional $150 million expected by early 2025.
• Net Effective Rents: Highest in company history, 25% higher than the previous five-quarter average.
• Weighted Average Lease Term: 10.4 years, the highest in company history.
• Available Liquidity: Nearly $800 million as of September 30, 2024.
• FFO Outlook for 2024: $3.59 to $3.63 per share, with a $0.03 increase at the midpoint from the prior outlook.
• Average Occupancy: Projected to be lower in Q4, with a year-end expectation between 86% to 87%.

• Warning! GuruFocus has detected 12 Warning Signs with HIW.

Release Date: October 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Highwoods Properties Inc (NYSE:HIW) reported financial results that exceeded initial expectations, with FFO of $0.90 per share and strong cash flows.
• The company achieved a significant increase in leasing volumes, with 1.3 million square feet of new second-generation leases signed, indicating strong future occupancy growth.
• The development pipeline is 49% leased, which is expected to drive cash flow growth as these assets deliver and stabilize.
• Highwoods Properties Inc (NYSE:HIW) continues to sell non-core assets, using proceeds to invest in higher-quality buildings and reduce leverage.
• The company has a strong balance sheet with nearly $800 million of total available liquidity, positioning it well for future investment opportunities.

Negative Points

• Despite strong leasing activity, the overall office market remains challenging with elevated vacancy rates.
• The company faces headwinds from higher operating expenses expected in Q4, impacting short-term financial results.
• Interest rates remain higher than forecast, which could affect future financial performance and investment opportunities.
• The Pittsburgh portfolio remains a challenge, with no immediate plans for disposition due to market conditions.
• Development costs remain high, with no significant reduction in hard and soft costs, impacting the feasibility of new projects.

Q & A Highlights

Q: Can you talk about the rental rate strength you saw in the quarter, particularly in Atlanta? Were there specific industries or tenant sizes driving this? A: Theodore Klinck, CEO: We had a strong quarter in leasing, particularly in Atlanta, with significant contributions from a financial services firm and a law firm. Even without these, our leasing economics were strong. The strength varies by submarket and tenant needs, with some willing to pay for longer terms and tenant improvements.

Q: You're ahead of schedule on leasing up 23Springs. Could you recognize revenue from this project earlier than expected? A: Theodore Klinck, CEO: 23Springs is progressing well, now 60% leased. We expect some earnings contribution in 2025, mainly in the latter half, as tenants move in mid-year and later.

Q: How are you approaching the Pittsburgh portfolio? Are there any plans for dispositions there? A: Theodore Klinck, CEO: We aim to exit Pittsburgh at the right time, but the market is challenging due to interest rates. We're encouraged by leasing activity there and will be patient for the right opportunity to sell.

Q: With strong leasing activity, is it more market activity or a flight-to-quality? A: Brendan Maiorana, CFO: It's largely market share driven. Our occupancy spread relative to market averages is widening, indicating a flight-to-quality in buildings and landlords with capital access.

Q: What are your thoughts on capital markets and potential acquisitions? A: Theodore Klinck, CEO: We continue to monitor the market, but there's limited availability of high-quality assets. We hope for more opportunities as interest rates stabilize and capital markets open up.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.