Highwoods Properties(US:HIW)2022-02-09 20:54Financial Data and Key Metrics Changes - The company reported FFO of $1.06 per share for Q4 2021, including $0.09 from land sale gains, with a full-year FFO of $3.77 per share, exceeding the high-end of the revised outlook by $0.01 [12][39] - Same property cash NOI growth was 3.2% for the quarter and 5.5% for the year, with year-end occupancy reaching 91.2% [13][29] - The company achieved a debt-to-EBITDA ratio of 5.4x, down from 5.6x at the end of Q3 2021 [15][41] Business Line Data and Key Metrics Changes - The company acquired $800 million in high-quality office buildings and completed $356 million in office development, with a 92% lease rate [9][24] - The development pipeline stands at $283 million, with 51% pre-leased [17] - The company signed 194 new second-generation leases totaling 1.1 million square feet in 2021, the highest since 2006 [24] Market Data and Key Metrics Changes - The company noted positive net absorption in markets such as Atlanta, Raleigh, Nashville, and Charlotte, with Raleigh experiencing significant demand for tech and life science jobs [31][32] - Tampa was highlighted as the top housing market for 2022, with office rents increasing by 7% [33] - The company reported a modest increase in occupancy, with expectations for further growth in the latter half of 2022 [29][70] Company Strategy and Development Direction - The company aims to generate sustainable returns by developing and acquiring high-quality office buildings in Best Business Districts (BBDs) [8] - A focus on capital recycling has led to the sale of $1 billion in non-core properties and the acquisition of $1.3 billion in high-quality assets over the past three years [47] - The company plans to sell $150 million to $200 million of non-core assets to return balance sheet metrics to pre-acquisition levels [22][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's long-term growth prospects, citing strong leasing activity and a resilient portfolio [11][25] - The anticipated gradual increase in portfolio utilization throughout 2022 was highlighted, with expectations for same property cash NOI growth of 0% to 2% [21][44] - Management acknowledged the competitive acquisition market, with cap rates for high-quality assets remaining low [65][66] Other Important Information - The company has a land bank capable of supporting $2.3 billion in future office developments and nearly $2 billion in mixed-use developments [20] - The company is focused on maintaining a strong balance sheet while investing in growth opportunities [41][47] Q&A Session Summary Question: Can you talk about the operating expense guidance and what's driving the increase this year? - Management explained that operating expenses are expected to normalize in 2022, with a significant portion of leases being full-service gross leases, impacting recoveries [52][54] Question: What are your expectations for AFFO or FAD during the year in 2022? - Management indicated that cash flow tends to be more volatile than FFO, but strong cash flow growth over the past few years supports healthy distributions [57][59] Question: Can you provide color on your expectations for acquisitions and dispositions? - Management noted that they have not yet contracted any of the planned dispositions but are confident in achieving the target by mid-year [84][86] Question: How does the company view the competitive landscape for acquisitions? - Management highlighted that high-quality assets are in high demand, with cap rates remaining competitive, particularly for new buildings [65][66] Question: What are your thoughts on tenant retention and the expiration schedule? - Management expects a lower retention ratio this year but noted that there are not many large expirations, which should mitigate risks [67][70]