HIW

Highwoods Properties, Inc. - Q1 2001 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2001. 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 March 31, 2001, the company had 54,239,673 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased 2.8% to $137.3 million, driven primarily by a 5.9% drop in rental property revenue ($128.6 million vs. $136.6 million). This was due to the disposition of 6.5 million square feet of office, industrial, and retail space and 277 apartment units, partially offset by new acquisitions and development completions.
• Same-Property Growth: Despite the portfolio reduction, same-property revenues increased 3.3% year-over-year.
• Interest Income Surge: Interest and other income rose 116.7% to $7.8 million, attributed to higher interest income and third-party fees, partially offset by a transition adjustment for the adoption of FASB 133.
• Expense Management: Rental operating expenses decreased 6.6% to $36.9 million, maintaining a stable expense ratio of 28.7% of related revenues.
• Share Repurchases: The company significantly reduced its share count, repurchasing approximately 3.97 million shares during the quarter. By late April 2001, the company had essentially completed a 10 million share repurchase program.

Guidance, Outlook, and Risks

• Liquidity Strategy: The company maintains a flexible capital structure with approximately $248 million available under its $300 million revolving credit facility. Short-term liquidity needs, including $80 million for development, are expected to be met through operating cash flows, the revolving loan, and asset dispositions.
• Disposition and Reinvestment: The company sold assets for $49.7 million in Q1 and has $120 million in pending sales. It plans to reinvest up to $122 million of net proceeds into tax-deferred exchanges (Section 1031) for in-service properties and development land.
• Development Pipeline: As of March 31, 2001, the company had 3.1 million square feet of development in process or completed but not stabilized, with an estimated cost of $333.5 million. The portfolio is 54% pre-leased.
• Legal Contingency: A class-action lawsuit regarding the J.C. Nichols merger was settled on the eve of trial. Management does not believe the settlement will have a material adverse effect.
• Market Risks: Key risks include potential increases in interest rates (though most debt is hedged), tenant financial deterioration, and the ability to lease space at favorable rates. The company has $32.5 million of variable-rate debt not covered by hedges.

Investor Verification Checklist

• Portfolio Composition: Verify the impact of the 6.5 million square foot disposition on long-term revenue stability versus the 3.3% same-property growth.
• Debt Maturity Profile: Review the maturity schedule of the $1.61 billion debt load and the terms of the $300 million revolving credit facility.
• Development Costs: Monitor the $333.5 million estimated cost for the development pipeline against actual spending and pre-leasing progress (currently 54%).
• Share Count Reduction: Confirm the final impact of the 10 million share repurchase program on earnings per share and dividend coverage.
• Reinvestment Execution: Track the execution of the planned $122 million in tax-deferred exchanges to ensure capital is redeployed efficiently.