Highwoods Properties (HIW) Q2 2024 earnings summary

Executive summary

• Achieved Q2 2024 FFO of $0.98 per share, up 4% year-over-year, and net income of $62.9M ($0.59 per share), with a $0.04 per share net benefit from tax refunds, exceeding prior FFO outlook.

• Signed 909,000 sq ft of second-gen leases, including 352,000 sq ft of new deals, with a weighted average lease term of 6.0 years, marking the third consecutive strong quarter for new leasing.

• Occupancy in the office portfolio decreased to 88.5% as of June 30, 2024, with expected average occupancy of 87.0%–89.0% for the remainder of 2024.

• Balance sheet remains strong with debt to EBITDA at 5.8x, $27M in cash, and no draws on the $750M revolver; no consolidated debt maturities until Q2 2026.

• Sold $80M of non-core assets year-to-date, including Raleigh properties, and prepping up to $150M more for disposition.

Financial highlights

• Q2 2024 rental and other revenues were $204.7M, down 1.2% year-over-year, mainly due to property dispositions.

• Net income for Q2 was $62.9M ($0.59 per share); FFO was $105.9M ($0.98 per share), both up from Q2 2023.

• Same property cash NOI grew 3.3% year-over-year; consolidated same property NOI increased 1.1%, but total NOI declined 0.6% due to dispositions.

• Received a $5.8M non-recurring tax refund, partially offset by a $1M non-recurring charge, netting a $4.8M benefit.

• Q2 2024 gains on property dispositions totaled $35.0M, reflecting the sale of Raleigh buildings.

Outlook and guidance

• Updated 2024 FFO guidance to $3.54–$3.62 per share, a $0.045 increase at midpoint from prior outlook.

• Same property cash NOI growth outlook maintained at 0.5%–2%.

• Management expects lower revenues and NOI for the rest of 2024 due to property dispositions and lower anticipated same property revenues.

• Expect lower margins in Q3 due to seasonal utility costs and temporary headwinds from ceasing interest capitalization on completed developments.

• Occupancy expected to trough in early 2025 and recover thereafter, with long-term stabilized occupancy targeted at 92–93%.