HIW

Highwoods Properties, Inc. - Q1 1999 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended March 31, 1999. Highwoods Properties, Inc. is a real estate investment trust (REIT) engaged in the acquisition, development, and operation of office, industrial, retail, and apartment properties. The company operates primarily in the southeastern United States. As of May 14, 1999, there were 61,661,891 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Rental revenue increased 46% to $146.7 million, driven by the acquisition of 9.6 million square feet of properties and the completion of 4.2 million square feet of development activity since late 1998. Same-property revenues increased 4%.
• Expense Increases: Rental operating expenses rose 53% to $45.3 million, and interest expense increased 83% to $32.6 million due to higher debt levels associated with acquisitions and development.
• Portfolio Expansion: The in-service portfolio grew from 33.9 million square feet in Q1 1998 to 43.6 million square feet in Q1 1999.
• Joint Venture Activity: The company contributed properties valued at approximately $142 million to a joint venture, receiving net cash proceeds of approximately $124 million, which were used to fund development and repay borrowings.

Outlook, Risks, and Management Commentary

• Liquidity and Capital Resources: The company maintains a $600 million unsecured revolving loan with approximately $144 million available as of March 31, 1999. Short-term liquidity needs include funding approximately $310 million in existing development activity.
• Asset Dispositions: Pending sales include approximately 3.3 million square feet of non-core properties in South Florida (expected gross proceeds of $323.2 million) and 737,000 square feet in Baltimore (expected gross proceeds of $82.2 million). Closures are expected by June 1999.
• Dividends: On April 27, 1999, the Board declared a quarterly dividend of $0.54 per share ($2.16 annualized).
• Legal Contingencies: A putative class action lawsuit filed in October 1998 regarding the merger with J.C. Nichols Company remains pending. The company intends to vigorously defend the claims but notes that an unfavorable outcome could have a material adverse effect.
• Year 2000 Compliance: Management does not expect Year 2000 issues to be material to operations. Remediation efforts for operations and property-level systems are approximately 90% and 75% complete, respectively.
• Market Risk: The company has approximately $325.8 million of variable rate debt not protected by hedges. A 100 basis point increase in interest rates would increase interest expense by approximately $3.3 million.

Investor Verification Checklist

• Verify the closing of the pending South Florida ($323.2M) and Baltimore ($82.2M) asset dispositions and the actual proceeds received.
• Monitor the status of the J.C. Nichols merger-related class action litigation and any potential financial impact.
• Track the progress of the $310 million in development funding requirements and the company's ability to refinance or sell assets to meet these needs.
• Review the impact of the new accounting standard (FAS 133) on derivative instruments, effective for fiscal years beginning after June 15, 1999.
• Confirm the occupancy rates and rental rate trends for the newly acquired and developed properties to ensure they meet stabilization targets.