Highwoods Properties ((HIW)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Highwoods Properties’ recent earnings call painted a positive picture, underscored by strong leasing volumes, significant rent growth, and strategic asset recycling. Despite some challenges with elevated capital expenditures affecting cash flow, the company’s financial performance and growth potential remain robust.
Strong Leasing Volume and Occupancy Outlook
Highwoods Properties reported signing over 1 million square feet of second-generation volume, including 326,000 square feet of new leases. This marks eight consecutive quarters of strong leasing activity, driving the leased rate 340 basis points higher than the occupancy rate at the quarter’s end.
Net Effective Rent Growth
The company achieved a high watermark in net effective rents, with an 18% increase over the trailing four quarters compared to the 2019 average. This growth reflects the company’s successful leasing strategies and market positioning.
Development Pipeline Progress
Highwoods signed 122,000 square feet of leases across its development pipeline, increasing the lease percentage to 72% from 64% last quarter. This progress highlights the company’s focus on expanding and optimizing its portfolio.
Financial Performance and Outlook
The company’s Funds From Operations (FFO) delivered at $0.86 per share. The midpoint of the FFO outlook was raised for the third consecutive quarter, now $0.08 higher than the initial outlook, indicating strong financial health and future growth potential.
Asset Recycling and Acquisitions
Highwoods acquired the Legacy Union parking garage for $111.5 million and sold a noncore property for $16 million. The company plans for $500 million in acquisitions and dispositions over the next few quarters, aiming to enhance portfolio quality and cash flow.
Balance Sheet and Debt Management
The company extended its only consolidated debt maturity prior to 2027, maintaining $625 million in available liquidity. With a debt-to-EBITDAre ratio of 6.4x, Highwoods expects to reduce this by 0.5x with future occupancy gains.
Elevated Capital Expenditures
Highwoods is experiencing elevated leasing capital expenditures ahead of projected occupancy build, which is impacting cash flows. However, these investments are expected to support long-term growth.
Potential Dilution from Capital Recycling
The earnings impact from selling versus buying could lead to potential FFO dilution, though the long-term outlook remains positive. The company is focused on strategic asset recycling to optimize its portfolio.
Forward-Looking Guidance
Looking ahead, Highwoods Properties is focused on leasing activities and portfolio optimization. The company anticipates further asset recycling of up to $500 million in acquisitions and dispositions in the coming quarters, aiming to enhance portfolio quality and cash flow. Financial metrics such as FFO have shown positive trends, with an increase in the 2025 FFO outlook midpoint by $0.08.
In summary, Highwoods Properties’ earnings call reflected a positive sentiment, driven by strong leasing volumes and strategic asset recycling. Despite challenges with capital expenditures, the company’s financial performance and growth potential remain robust, with a clear focus on optimizing its portfolio and enhancing cash flow.