Highwoods Properties, Inc. (NYSE: HIW), a leading office real estate investment trust (REIT), has reported impressive financial results for the second quarter of 2024, showcasing the strength and resilience of its portfolio. The company's strong performance has prompted it to raise its full-year 2024 guidance, further solidifying its position as a top player in the office REIT sector.
Financials
For the second quarter of 2024, Highwoods reported net income of $64.8 million, or $0.59 per diluted share. This compares to net income of $43.9 million, or $0.40 per diluted share, in the same period of the prior year. On an annual basis, the company's net income for 2023 stood at $148.7 million.
The company's total revenue for the second quarter of 2024 was $204.7 million, a slight decrease of 1.2% compared to $207.3 million in the prior-year quarter. For the full year 2023, Highwoods reported total revenue of $834.0 million. The decrease in quarterly revenue was primarily due to the loss of revenue from property dispositions, which was partially offset by higher consolidated same-property revenues and revenue from development properties placed in service.
Highwoods' operating cash flow for the second quarter of 2024 was $102.2 million, compared to $90.6 million in the same period of 2023. For the full year 2023, the company's operating cash flow was $387.0 million. Free cash flow, defined as operating cash flow less capital expenditures, was $51.3 million in the second quarter of 2024, compared to $46.9 million in the prior-year quarter. Annually, Highwoods' free cash flow for 2023 was $266.4 million.
Business Overview
The company's strong financial performance was driven by several key factors, including continued leasing momentum, successful property dispositions, and the ongoing development pipeline. Highwoods' leasing teams signed 909,000 square feet of second-generation leases during the second quarter, including 352,000 square feet of new leases. This marked the third consecutive quarter of robust leasing activity, reflecting the strong demand for the company's high-quality office properties in its Sunbelt markets.
Highwoods' geographic diversification has been a key strength, with its portfolio spanning several major markets, including Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond, and Tampa. The company's focus on best business districts (BBDs) within these markets has allowed it to capitalize on the flight to quality trend, as tenants seek out well-located, amenity-rich office spaces.
Property Dispositions
During the second quarter, Highwoods sold seven buildings in Raleigh for a total sales price of $62.5 million, recording a gain on disposition of $35.0 million. The company's disciplined capital recycling strategy has enabled it to continuously upgrade the quality of its portfolio, while also providing additional financial flexibility.
Development Pipeline
Highwoods' development pipeline remains a significant growth driver, with $506 million of projects currently underway, 45% of which are pre-leased. Key developments include the 642,000-square-foot, $460 million 23Springs project in Dallas, which is 56% leased, and the 143,000-square-foot, $83 million Midtown East project in Tampa, which is 16% pre-leased two years ahead of stabilization.
Liquidity
The company's balance sheet remains in excellent shape, with $27.0 million in cash and cash equivalents as of June 30, 2024, and no outstanding borrowings on its $750.0 million unsecured revolving credit facility. Highwoods' net debt-to-adjusted EBITDAre ratio stood at 5.8x at the end of the second quarter, demonstrating its financial strength and flexibility.
Outlook
Reflecting the strong performance in the first half of 2024, Highwoods has raised its full-year 2024 FFO guidance to a range of $3.54 to $3.62 per share, up from the previous range of $3.46 to $3.61 per share. This revised outlook implies a $0.045 increase at the midpoint, with $0.02 attributable to non-recurring items and the remaining $0.025 driven by better-than-expected NOI.
Looking ahead, Highwoods remains optimistic about the long-term prospects for its business. The company's focus on high-quality, well-located office properties in the Sunbelt region, combined with its strong balance sheet and disciplined capital allocation strategy, positions it well to navigate the current market environment and capitalize on future growth opportunities.
Conclusion
Overall, Highwoods' solid second-quarter results and raised 2024 guidance underscore the strength and resilience of its portfolio and the effectiveness of its strategic initiatives. As the company continues to execute on its work-placemaking strategy, investors can look forward to the potential for sustained growth and value creation in the years to come.