Highwoods Properties, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter earnings report; it includes selected fourth-quarter leasing data. Highwoods is an office REIT operating primarily in business districts across eight core markets. Unless stated otherwise, dollar amounts below are in millions.
Financial and operating highlights
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Rental and other revenues | $834.0 | $828.9 | Up 0.6% |
| Net income | $151.3 | $164.0 | Down 7.7% |
| Diluted earnings per common share | $1.39 | $1.49 | Down $0.10 |
| Net operating income (NOI) | $565.2 | $569.1 | Down 0.7%; NOI margin was approximately 67.8% versus 68.7% |
| Same-property NOI | $545.4 | $551.9 | Down 1.2%; same-property cash NOI rose to $530.2 from $527.4 |
| Funds from operations (FFO) per share | $3.83 | $4.03 | Down 5.0%; non-GAAP measure |
| Net cash from operating activities | $387.0 | $421.8 | Down $34.8 |
| Interest expense | $136.7 | $105.4 | Up 29.7%, primarily from higher rates and average debt |
Year-end portfolio occupancy was 88.8%, down from 91.0% a year earlier; average occupancy for 2023 was 89.2%, versus 90.8% in 2022. Annualized GAAP rent per occupied square foot increased to $32.79 from $31.89. The reported annual results also reflect $47.8 million in property disposition gains and an $11.8 million gain from deconsolidating a joint venture.
Debt, liquidity, and capital
- Mortgages and notes payable, net, were $3.21 billion at year-end, compared with $3.20 billion in 2022. Debt and preferred stock represented 41.9% of undepreciated asset book value. Secured debt was $720.8 million and unsecured debt $2.51 billion.
- Unhedged variable-rate debt was $370 million. A 100-basis-point rate increase on that amount would increase annual interest expense by an estimated $3.7 million.
- Cash and cash equivalents were $25.1 million at December 31, 2023. The $750 million revolving credit facility had $729.1 million of unused capacity at year-end, after letters of credit. In January 2024, the facility was extended to mature in January 2028, with two optional six-month extensions; unused capacity was $713.1 million as of January 26, 2024.
- The company issued $350 million of 7.65% notes due 2034, with an effective yield of 7.836% before certain associated costs, and obtained a $200 million secured mortgage loan at an effective fixed rate of 5.69%. Management reported covenant compliance and no scheduled debt maturities before 2026.
- Common dividends were $0.50 per share each quarter in 2023, or $2.00 for the year. A further $0.50-per-share dividend was declared in January 2024.
Material changes and management outlook
- Revenue grew modestly, but higher operating expenses and interest costs contributed to lower NOI and earnings. Same-property expenses rose $12.7 million, exceeding the $6.2 million increase in same-property revenue.
- Operating cash flow declined, while investing cash use fell substantially to $169.7 million from $614.8 million, principally reflecting reduced acquisition, development, joint-venture, and capital spending, together with preferred-equity repayment proceeds.
- Management expects 2024 average occupancy of 87%–89%, lower rental and other revenues, lower same-property NOI, lower total NOI, and higher interest expense and property operating expenses than in 2023. It expects to sell up to $200 million of non-core properties during 2024; timing and proceeds are uncertain.
- At year-end, the in-process development table showed anticipated total investment of $555 million across three projects, 31.8% pre-leased. This is distinct from the broader $928.6 million pipeline, which also includes recently completed but not yet stabilized developments.
- The 2024 lease-expiration schedule includes leases representing 9.0% of annualized GAAP rental revenue; 2025 expirations represent 12.7%. Fourth-quarter 2023 new and renewal leases had combined GAAP rents 7.4% above prior leases in the same spaces.
Risks, contingencies, and unusual items
- Management identifies continued work-from-home adoption, weaker office demand, falling occupancy or rents, tenant concessions and leasing capital needs as material business risks. Occupancy already declined year over year.
- Interest-rate, refinancing, debt-covenant, insurance, severe-weather, environmental, development-cost, and joint-venture risks could affect cash flow and asset values. Impairment estimates depend on assumptions about rents, occupancy, capitalization rates, and asset holding periods.
- In 2022, the company recorded $36.5 million of impairments, including $35.0 million for EQT Plaza; no impairment charge was recorded in 2023. EQT Plaza’s 317,000-square-foot EQT lease was scheduled to expire in September 2024, and renewal was not assured.
- A $21 million Tampa land disposition financed largely by a $19 million non-recourse seller loan was not recognized as a sale because repayment was not considered probable. The land remained on the balance sheet, and the cash received was recorded as a deposit.
- The Markel joint venture was deconsolidated effective January 1, 2023 after governance changes, producing the $11.8 million gain. Management said ordinary-course legal matters were not expected to have a material adverse effect. The company reported no cybersecurity incident that had materially affected it or was reasonably likely to do so.
Important facts for investors to verify
- Whether occupancy and leasing hold near management’s 2024 outlook, particularly as 2024–2025 leases expire and remote-work preferences continue to evolve.
- Whether same-property expenses, interest expense, and cash generation track management’s expectations, and how these affect dividend coverage and balance-sheet flexibility.
- Actual debt refinancing terms and borrowing costs, including the impact of the high-coupon 2034 notes and variable-rate exposure.
- Leasing, funding, completion, and stabilization progress for development projects, plus any changes to anticipated costs or pre-leasing.
- Whether planned non-core asset sales occur near the stated amount and on acceptable terms; also monitor EQT Plaza lease outcomes and related valuation or impairment judgments.
- Use FFO and NOI alongside GAAP earnings and cash flows: the filing presents FFO as a supplemental non-GAAP measure, not a substitute for GAAP results.