Highwoods Properties(US:HIW)2021-10-27 20:35Financial Data and Key Metrics Changes - The company reported FFO of $0.96 per share in Q3 2021, an increase from $0.93 in Q2 2021 [37] - Net income for the quarter was $72.1 million or $0.69 per share [37] - The updated 2021 FFO outlook is now $3.73 to $3.76 per share, up $0.07 at the midpoint from the previous outlook [14][42] - Same-property cash NOI growth outlook was raised to 6% to 7%, an increase of more than 150 basis points at the midpoint from the prior outlook [45] Business Line Data and Key Metrics Changes - The company signed 672,000 square feet of second leases, including 245,000 square feet of new deals, with a total of 96 leases signed during the quarter [8] - Rents on signed leases increased by 19.3% on a GAAP basis and 4.3% on a cash basis [9] - Same-property cash NOI growth was strong at 6.4%, including repayments of temporary rent deferrals [13] Market Data and Key Metrics Changes - The occupancy rate increased to 90.4%, up 90 basis points from the previous quarter [28] - In Raleigh, 135,000 square feet of leases were signed, with market rents up nearly 4% [31] - Nashville achieved a quarter-end occupancy of 95.3% [32] Company Strategy and Development Direction - The company plans to sell $500 million to $600 million of noncore assets by mid-2022 to return its balance sheet to pre-acquisition levels [16] - The company has a land bank that can support over $2 billion of future development, which is seen as a key differentiator [22] - The company is focusing on high-quality office spaces in prime locations to attract tenants and retain talent [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of office utilization, although it is expected to remain around 40% until the new year [7] - The company believes that the flight to higher quality buildings will provide a competitive advantage [11] - Management noted that customers are increasingly returning to the office, indicating a positive sentiment towards physical workplaces [26] Other Important Information - The company completed the $285 million Asurion build-to-suit project ahead of schedule and on budget [17] - The company has sold $163 million of noncore properties since the acquisition announcement [24] - The company raised its quarterly dividend by over 4% [24] Q&A Session Summary Question: Changes to the Ovation site entitlements - Management confirmed that the site is entitled for 1.4 million square feet of office space and plans to reimagine the master plan for a mixed-use development [54][56] Question: When will concessions start to normalize? - Management indicated that concessions have leveled off but remain competitive, with hopes that net effective rents are stabilizing [58][59] Question: Utilization rate data - The 40% utilization rate primarily reflects smaller customers returning to the office, while larger customers have delayed their return [61][62] Question: Disposition pace and pricing - Management is confident in closing $250 million to $300 million of dispositions by year-end, with current pricing better than initially expected [68][70] Question: Second-generation leasing trends - Management noted a mix of suburban and urban leasing activity, with a focus on repositioning suburban assets to enhance amenities [80][81] Question: Supply chain impacts on future development - Management believes that while there are supply chain challenges, they expect to navigate these issues and continue with new construction [94][96] Question: Portfolio quality post-dispositions - Management stated that capital recycling will continue, and they will always evaluate the portfolio for upgrades [99][100] Question: Largest tenant expirations - The largest tenant expiration through the end of 2022 is a 62,000 square foot customer, with limited large customer exposures anticipated [104][106]