Highwoods Properties, Inc. — Q1 2022 Form 10-Q
Business context and period. Highwoods is an office REIT operating primarily in eight U.S. markets. This unaudited report covers the three months ended March 31, 2022, compared with Q1 2021. At quarter-end, the company owned or held interests in 28.0 million rentable square feet of in-service properties, with 0.6 million square feet under development.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Rental and other revenue | $206.4 million | $183.8 million |
| Net income | $42.1 million | $56.9 million |
| Net income available to common stockholders | $40.3 million; $0.38/share | $54.5 million; $0.52/share |
| Funds from operations (FFO), available to common stockholders | $110.4 million; $1.03/share | $97.5 million; $0.91/share |
| Net cash from operating activities | $74.1 million | $83.0 million |
| Net cash used in investing activities | $59.4 million | $154.9 million |
Revenue increased 12.3%, while net income available to common stockholders declined 26.1%. The decline largely reflects lower property disposition gains ($4.1 million versus $18.9 million); diluted EPS fell from $0.52 to $0.38. FFO per share, a non-GAAP measure, rose from $0.91 to $1.03. NOI was $145.0 million, up 13.6%; NOI as a share of revenue was approximately 70.2%, versus 69.4%. Same-property NOI increased 2.9% to $123.9 million.
At March 31, total assets were $5.69 billion and mortgages and notes payable, net, were $2.83 billion, versus $2.79 billion at year-end. Debt included $490.0 million secured and $2.35 billion unsecured borrowings. Cash and cash equivalents were $18.7 million, plus $14.1 million restricted cash. The $750 million revolving facility had $110 million drawn and $639.9 million unused capacity at April 19. The company reported compliance with debt covenants and a 39.7% debt-and-preferred-stock-to-undepreciated-assets leverage ratio.
Material changes and operating developments
- Revenue growth primarily reflected the 2021 acquisition of real estate assets from Preferred Apartment Communities, development properties placed in service, and higher same-property revenue; dispositions partly offset growth.
- Office occupancy was 91.1% at March 31, down from 91.2% at December 31, 2021. Q1 new and renewal leases had weighted average GAAP rents 14.9% above prior leases in the same spaces.
- Interest expense rose 23.4% to $24.4 million, primarily because of higher average debt and lower capitalized interest. General and administrative expense rose 36.2% to $13.6 million, partly due to long-term incentive compensation.
- Operating cash flow declined by $8.9 million year over year, mainly due to working-capital changes and disposition timing. Investing outflows were substantially lower than in Q1 2021, which included the acquisition of the remaining interest in the Highwoods DLF Forum joint venture.
- The company sold Tampa land for $9.6 million and recognized a $4.1 million gain. It had sold $363 million of non-core assets since announcing a $500–$600 million sale plan in April 2021.
Outlook, liquidity, and risks
- Management expected occupancy to be approximately 90.5%–91.5% for the remainder of 2022; same-property NOI was expected to remain relatively consistent with 2021. Total NOI and rental revenue were expected to be higher, primarily due to the PAC acquisition and developments placed in service.
- Management expected higher interest expense for the remainder of 2022, citing higher average interest rates and lower capitalized interest. No EPS or FFO guidance is stated in the provided filing text.
- Approximately $150 million remained to fund started or committed development projects; the company and joint venture partners forecast funding about $53 million during the remainder of 2022. Development projects included GlenLake III and 2827 Peachtree; the latter was 72% pre-leased and under construction through an unconsolidated joint venture.
- Debt maturities included a $200 million unsecured bank term loan due November 2022 and $250 million of unsecured notes due January 2023. Management believed available cash, operating cash flow, financing sources, and potential asset sales would meet short-term needs.
- Of $2.84 billion in principal debt, $310 million was variable-rate debt not protected by hedges; a 100-basis-point rate increase would add an estimated $3.1 million to annual interest expense. The $50 million interest-rate swaps expired in Q1 2022.
- Management said office usage remained significantly below pre-pandemic levels, although buildings remained open, and expected usage to increase gradually during 2022. Risks include remote-work effects on office demand, tenant credit deterioration, leasing and development execution, operating-cost and interest-rate increases, asset-sale pricing, refinancing availability, and economic or natural-disaster impacts.
- The board declared a $0.50-per-share dividend payable June 14, 2022. Future distributions remain at the board’s discretion and reduce cash available for other purposes.
Important facts for investors to verify
- Whether occupancy and office utilization recover as management anticipated, and whether lease expirations and renewals sustain the reported rent spread.
- Progress on the remaining non-core asset sales against the announced $500–$600 million target, including timing and realized pricing.
- Refinancing or repayment plans and costs for the November 2022 and January 2023 maturities, alongside variable-rate exposure and covenant headroom.
- Development funding, leasing, completion, and stabilization assumptions, including the company’s exposure through joint-venture loans and investments.
- Whether operating cash generation and liquidity remain sufficient to fund capital needs and dividends; compare GAAP earnings with non-GAAP FFO and NOI measures.