Highwoods Properties(HIW) - 2025 Q2 - Quarterly Report

Filing Information Provides essential filing details for Highwoods Properties, Inc. and its Operating Partnership Registrant Information Highwoods Properties, Inc. and Highwoods Realty Limited Partnership filed this Form 10-Q; the Company is a large accelerated filer, the Operating Partnership is non-accelerated - Highwoods Properties, Inc. (HIW) is a large accelerated filer, and Highwoods Realty Limited Partnership is a non-accelerated filer[5][6] - 108,073,015 shares of Common Stock outstanding as of July 22, 2025[6] Explanatory Note Clarifies report terminology, defines the relationship between Highwoods Properties, Inc. and Highwoods Realty Limited Partnership, and outlines property-level operational information scope - The Company conducts its activities through the Operating Partnership and is its sole general partner[10] - Property-level operational information includes in-service wholly owned properties and in-service properties owned by consolidated and unconsolidated joint ventures (at our share); development projects are not considered in-service until completed and stabilized (occupancy generally exceeds 93%)[11] PART I - FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements for Highwoods Properties, Inc. and Highwoods Realty Limited Partnership, including balance sheets, income, comprehensive income, equity/capital, and cash flows Highwoods Properties, Inc. Financial Statements Provides unaudited consolidated financial statements for Highwoods Properties, Inc., detailing financial position, performance, and cash flows Consolidated Balance Sheets (Highwoods Properties, Inc.) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----- | :--------------------------- | :------------------------------- | | Total Assets | $6,058,711 | $6,029,355 | | Total Liabilities | $3,615,595 | $3,598,110 | | Total Equity | $2,376,238 | $2,365,454 | Consolidated Statements of Income (Highwoods Properties, Inc.) | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Rental and other revenues | $200,600 | $204,738 | $400,983 | $416,013 | | Total operating expenses | $148,653 | $147,661 | $297,549 | $304,266 | | Net income | $19,221 | $64,770 | $119,221 | $91,983 | | Net income available for common stockholders | $18,270 | $62,870 | $115,719 | $88,934 | | Basic EPS | $0.17 | $0.59 | $1.07 | $0.84 | | Diluted EPS | $0.17 | $0.59 | $1.07 | $0.84 | Consolidated Statements of Cash Flows (Highwoods Properties, Inc.) | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $162,855 | $202,365 | | Net cash used in investing activities | $(82,156) | $(55,960) | | Net cash used in financing activities | $(74,368) | $(141,169) | | Net increase in cash and cash equivalents and restricted cash | $6,331 | $5,236 | Highwoods Realty Limited Partnership Financial Statements Provides unaudited consolidated financial statements for Highwoods Realty Limited Partnership, detailing financial position, performance, and cash flows Consolidated Balance Sheets (Highwoods Realty Limited Partnership) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----- | :--------------------------- | :------------------------------- | | Total Assets | $6,058,711 | $6,029,355 | | Total Liabilities | $3,615,595 | $3,598,110 | | Total Capital | $2,349,522 | $2,336,643 | Consolidated Statements of Income (Highwoods Realty Limited Partnership) | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Rental and other revenues | $200,600 | $204,738 | $400,983 | $416,013 | | Total operating expenses | $148,653 | $147,661 | $297,549 | $304,266 | | Net income | $19,221 | $64,770 | $119,221 | $91,983 | | Net income available for common unitholders | $18,635 | $64,151 | $118,040 | $90,748 | | Basic EPS | $0.17 | $0.60 | $1.08 | $0.84 | | Diluted EPS | $0.17 | $0.60 | $1.08 | $0.84 | Consolidated Statements of Cash Flows (Highwoods Realty Limited Partnership) | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $162,855 | $202,365 | | Net cash used in investing activities | $(82,156) | $(55,960) | | Net cash used in financing activities | $(74,368) | $(141,169) | | Net increase in cash and cash equivalents and restricted cash | $6,331 | $5,236 | Notes to Condensed Consolidated Financial Statements Detailed notes to unaudited condensed consolidated financial statements cover business, accounting policies, capital, leases, investments, real estate, intangibles, debt, noncontrolling interests, fair value, share-based payments, assets held for sale, EPS/unit, and segment information Note 1. Description of Business and Significant Accounting Policies - Highwoods Properties, Inc. is a fully integrated office REIT operating in Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond, and Tampa; as of June 30, 2025, the company owned or had an interest in 27.3 million rentable square feet of in-service properties and 1.4 million rentable square feet under development[58] - The Company owns 98.0% of the Common Units in the Operating Partnership as of June 30, 2025[59] - The Company issued 44,819 shares of Common Stock under equity distribution agreements for net proceeds of $1.4 million during the three and six months ended June 30, 2025[60] Note 2. Leases Rental and Other Revenues from Operating Leases | Period | 2025 (in thousands) | 2024 (in thousands) | | :----- | :------------------ | :------------------ | | Three Months Ended June 30 | $222,100 | $201,000 | | Six Months Ended June 30 | $392,900 | $408,800 | Variable Lease Payments | Period | 2025 (in thousands) | 2024 (in thousands) | | :----- | :------------------ | :------------------ | | Three Months Ended June 30 | $16,700 | $16,600 | | Six Months Ended June 30 | $33,600 | $39,100 | Note 3. Investments in and Advances to Affiliates - The Company has variable interests in several unconsolidated joint ventures (Granite Park Six, 23Springs, McKinney & Olive, Midtown East, 2827 Peachtree) where it is not the primary beneficiary, limiting its risk of loss to the carrying value of its investment balances and/or outstanding loans to the JVs[71][73][75][77] - The Midtown West joint venture is consolidated as the Company is the primary beneficiary, holding an 80.0% interest and controlling significant activities[79] Note 4. Real Estate Assets - Acquired Advance Auto Parts Tower (346,000 sq ft office building in Raleigh) for $137.9 million in Q1 2025[81] - Sold three buildings in Tampa and land in Pittsburgh for $146.3 million, recording $82.2 million in net gains on disposition in Q1 2025[82] Note 5. Intangible Assets and Below Market Lease Liabilities Total Intangible Assets and Below Market Lease Liabilities (Net of Amortization) | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------- | :--------------------------- | :------------------------------- | | Deferred leasing costs | $221,609 | $209,967 | | Acquisition-related below market lease liabilities | $14,770 | $16,186 | Amortization of Intangible Assets and Below Market Lease Liabilities | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Amortization of deferred leasing costs | $9,070 | $9,984 | $18,074 | $19,629 | | Amortization of lease incentives | $660 | $550 | $1,305 | $1,243 | | Amortization of above market lease assets | $636 | $794 | $1,234 | $1,596 | | Amortization of below market lease liabilities | $(665) | $(1,130) | $(1,417) | $(2,274) | Note 6. Mortgages and Notes Payable Mortgages and Notes Payable (Net) | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------- | :--------------------------- | :------------------------------- | | Secured indebtedness | $707,567 | $712,186 | | Unsecured indebtedness | $2,639,626 | $2,595,815 | | Less-unamortized debt issuance costs | $(12,808) | $(14,442) | | Total mortgages and notes payable, net | $3,334,385 | $3,293,559 | - Unused capacity of the $750.0 million unsecured revolving credit facility was $602.9 million as of June 30, 2025, and $612.9 million as of July 22, 2025[86] - The Company is in compliance with financial covenants for its consolidated debt[87] Note 7. Noncontrolling Interests - Noncontrolling interest in consolidated affiliates relates to a 20.0% interest in the Midtown West joint venture[89] Noncontrolling Interests in the Operating Partnership | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Beginning balance | $63,759 | $56,324 | $65,791 | $49,520 | | Adjustment to fair value | $3,829 | $(12) | $927 | $7,467 | | Net income attributable | $365 | $1,281 | $2,321 | $1,814 | | Distributions | $(1,075) | $(1,075) | $(2,151) | $(2,151) | | Total noncontrolling interests | $66,878 | $56,518 | $66,878 | $56,518 | Note 8. Disclosure About Fair Value of Financial Instruments - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[91][92][93][96] Fair Value Hierarchy as of June 30, 2025 | Category | Total (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :------- | :------------------- | :--------------------- | :--------------------- | :--------------------- | | Assets | $7,844 | $1,617 | $6,227 | $0 | | Noncontrolling Interests in OP | $66,878 | $66,878 | $0 | $0 | | Liabilities | $3,209,620 | $1,617 | $3,208,003 | $0 | Note 9. Share-Based Payments Share-Based Compensation Expense | Period | 2025 (in thousands) | 2024 (in thousands) | | :----- | :------------------ | :------------------ | | Three Months Ended June 30 | $1,300 | $1,100 | | Six Months Ended June 30 | $6,300 | $6,000 | - As of June 30, 2025, $5.6 million of total unrecognized share-based compensation costs remain, to be recognized over a weighted average remaining contractual term of 2.2 years[100] Note 10. Real Estate and Other Assets Held For Sale Real Estate and Other Assets Held For Sale | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------- | :--------------------------- | :------------------------------- | | Net real estate assets | $0 | $45,802 | | Accrued straight-line rents receivable | $0 | $6,581 | | Deferred leasing costs, net | $0 | $2,784 | | Prepaid expenses and other assets, net | $0 | $242 | | Total assets held for sale | $0 | $55,409 | - As of June 30, 2025, there were no assets held for sale, indicating all previously held-for-sale assets were disposed of[101] Note 11. Earnings Per Share and Per Unit Company Earnings Per Common Share (Basic & Diluted) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income available for common stockholders | $18,270 | $62,870 | $115,719 | $88,934 | | Basic EPS | $0.17 | $0.59 | $1.07 | $0.84 | | Diluted EPS | $0.17 | $0.59 | $1.07 | $0.84 | Operating Partnership Earnings Per Common Unit (Basic & Diluted) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income available for common unitholders | $18,635 | $64,151 | $118,040 | $90,748 | | Basic EPS | $0.17 | $0.60 | $1.08 | $0.84 | | Diluted EPS | $0.17 | $0.60 | $1.08 | $0.84 | Note 12. Segment Information - The Company evaluates its business by geographic location, with primary reportable segments including Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond, and Tampa[106] Total Net Operating Income by Segment | Period | 2025 (in thousands) | 2024 (in thousands) | | :----- | :------------------ | :------------------ | | Three Months Ended June 30 | $136,945 | $140,179 | | Six Months Ended June 30 | $272,294 | $281,019 | Note 13. Subsequent Events - On July 24, 2025, the Company declared a cash dividend of $0.50 per share of Common Stock, payable on September 9, 2025[112] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, and cash flows, including strategy, revenue/expense analysis, liquidity, critical accounting, and non-GAAP measures Disclosure Regarding Forward-Looking Statements The report contains forward-looking statements, highlighting factors and risks that could cause actual results to differ materially from projections, including customer financial condition, leasing terms, and market conditions - Forward-looking statements are identified by terms like 'may,' 'will,' 'expect,' 'anticipate,' 'estimate,' 'continue'[117] - Key risks include deteriorating customer financial condition, inability to lease/re-lease space favorably, delays in development/acquisition, excessive supply, market declines, increased interest rates/operating expenses, natural disasters, and liquidity issues[119] Executive Summary The Company aims to lead commercial real estate evolution by creating inspiring BBD environments, focusing on high-quality workplaces, a strong balance sheet, and portfolio strengthening through development, acquisition, and disposition - Company's vision: to be a leader in the evolution of commercial real estate for the benefit of customers, communities, and investors[121] - Strategy: own and operate high-quality workplaces in Best Business Districts (BBDs), maintain a strong balance sheet, employ a talented team, and communicate transparently[121] - Occupancy in the office portfolio decreased from 87.1% as of December 31, 2024, to 85.6% as of June 30, 2025, with expected average occupancy for the remainder of 2025 between 85.0% and 86.0%[124] - Annual combined GAAP rents for new and renewal leases signed in Q2 2025 were $33.63 per rentable square foot, representing a 17.6% increase over previous leases[127] - Top customers (over 3% of annualized GAAP revenues) as of June 30, 2025, include Bank of America (3.9%) and Asurion (3.5%)[128] - Consolidated same property NOI was $2.9 million (2.1%) lower in Q2 2025 versus 2024 due to decreased revenues and increased expenses, with expectations for it to be lower for the remainder of 2025[130] Results of Operations Details financial performance for Q2 and H1 2025 versus 2024, highlighting changes in rental revenues, operating expenses, interest, other income, property disposition gains, affiliate earnings, and diluted EPS - Rental and other revenues decreased by $4.1 million (2.0%) in Q2 2025 compared to Q2 2024, primarily due to property dispositions, lower consolidated same property revenues, and properties taken out of service, partially offset by the Advance Auto Parts Tower acquisition[146] - Net income decreased from $64.77 million in Q2 2024 to $19.22 million in Q2 2025[19] - Diluted EPS decreased by $0.42 in Q2 2025 compared to Q2 2024[153] - Gains on disposition of property were $35.0 million lower in Q2 2025 compared to Q2 2024[151] - Rental and other revenues decreased by $15.0 million (3.6%) in the first six months of 2025 compared to 2024, primarily due to dispositions, lower same property revenues, and properties taken out of service, partially offset by the Advance Auto Parts Tower acquisition[154] - Net income increased from $91.98 million in H1 2024 to $119.22 million in H1 2025[19] - Diluted EPS increased by $0.23 in H1 2025 compared to H1 2024[161] - Gains on disposition of property were $40.0 million higher in H1 2025 compared to H1 2024, primarily from Tampa building dispositions[159] Liquidity and Capital Resources The Company maintains a conservative balance sheet with ample liquidity, meeting short-term needs via operating cash and credit, and long-term needs via debt/equity and asset dispositions - As of July 22, 2025, the Company had approximately $32 million in cash and $137.0 million drawn on its $750.0 million revolving credit facility[136] - Leverage ratio (mortgages and notes payable + outstanding preferred stock to undepreciated book value of assets) was 42.5% as of June 30, 2025[136] - No debt scheduled to mature prior to 2027, except for a $200.0 million unsecured bank term loan maturing in May 2026[140] - Expected to sell up to $150 million of non-core properties during the remainder of 2025[182] Critical Accounting Estimates No changes were made to the Company's critical accounting policies during the six months ended June 30, 2025 - No changes were made to critical accounting policies in the six months ended June 30, 2025[184] Non-GAAP Information Presents non-GAAP financial measures like FFO and NOI, offering a clearer understanding of performance by excluding non-cash items and property sale gains/losses - FFO, FFO available for common stockholders, and FFO per share are non-GAAP metrics considered beneficial for evaluating REIT performance, as they exclude depreciation, amortization, impairments, and gains/losses from property sales[186] Funds From Operations (FFO) | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income | $19,221 | $64,770 | $119,221 | $91,983 | | FFO | $98,271 | $106,567 | $190,578 | $203,140 | | FFO available for common stockholders | $97,685 | $105,946 | $189,371 | $201,898 | | FFO per share | $0.89 | $0.98 | $1.72 | $1.87 | - NOI is defined as rental and other revenues less rental property and other expenses; Same property NOI and cash NOI are also used as supplemental measures[191] Same Property Net Operating Income (NOI) | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net operating income | $136,945 | $140,179 | $272,294 | $281,019 | | Same property net operating income | $137,938 | $140,940 | $275,996 | $281,775 | | Same property cash net operating income | $133,665 | $136,990 | $265,633 | $273,431 | Quantitative and Qualitative Disclosures About Market Risk Market risk information as of December 31, 2024, is referenced from the company's 2024 Annual Report on Form 10-K - For market risk information as of December 31, 2024, refer to the 2024 Annual Report on Form 10-K[195] Controls and Procedures The Company and Operating Partnership's disclosure controls were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures for both the Company and the Operating Partnership were effective as of June 30, 2025[197] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[198] PART II - OTHER INFORMATION Unregistered Sales of Equity Securities and Use of Proceeds Details shares of Common Stock surrendered by employees for tax withholding related to restricted stock vesting in Q2 2025 Shares of Common Stock Surrendered for Tax Withholding (Q2 2025) | Period | Total Number of Shares Purchased | Weighted Average Price Paid per Share | | :----- | :------------------------------- | :------------------------------------ | | April 1 to April 30 | 19 | $29.64 | | May 1 to May 31 | — | — | | June 1 to June 30 | — | — | | Total | 19 | $29.64 | Exhibits Lists all exhibits filed with the Form 10-Q, including equity incentive plans, certifications, and XBRL documents - Exhibits include the 2025 Long-Term Equity Incentive Plan, CEO/CFO certifications under Sections 302 and 906 of Sarbanes-Oxley Act for both the Company and Operating Partnership, and Inline XBRL documents[203] Signatures Signatures Contains signatures of authorized officers for Highwoods Properties, Inc. and Highwoods Realty Limited Partnership, certifying the report filing - Report signed by Brendan C. Maiorana, Executive Vice President and Chief Financial Officer, on behalf of Highwoods Properties, Inc. and Highwoods Realty Limited Partnership on July 29, 2025[207]