Highwoods Properties(HIW) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company delivered FFO of $3.33 per share for 2019, impacted by balance sheet write-offs and one-time costs, but would have been in the upper half of the outlook range without these items [10][36] - In Q4, FFO was $0.91 per share, a 5.4% year-over-year increase, with net income of $0.58 per share [15][37] - The initial 2020 FFO outlook is $3.60 to $3.72 per share, indicating a year-over-year growth of approximately 10% at the midpoint [17][38] Business Line Data and Key Metrics Changes - The company leased 3.9 million square feet of second-generation office space in 2019, with GAAP rent growth of 18.5% and cash rent growth of 4.7% [11] - In Q4, 1.2 million square feet were leased with GAAP rent growth of 19.8% and cash rent growth of 6.1% [15][20] - Same property cash NOI growth was up 1.3% for the year, or 2.8% excluding the impact of Laser Spine [11] Market Data and Key Metrics Changes - The company’s markets continue to outperform national averages, with three cities ranked in the top four for "Markets to Watch" [8] - In Atlanta, average Class A rents increased by 4.5% year-over-year, with positive net absorption of 726,000 square feet in Q4 [28] - Raleigh saw average Class A rates rise by 4.7% year-over-year, with portfolio occupancy improving to 90.1% [30][31] Company Strategy and Development Direction - The company is focused on executing a market rotation plan, increasing occupancy and rents, and finding opportunities to strengthen cash flow [7][9] - A $500 million development pipeline is 77% pre-leased, with expectations for continued demand for new products [12][35] - The company plans to complete phase one of its market rotation plan by the second quarter, with anticipated cash flow accretive results [13][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in business fundamentals, noting strong demand across all markets and submarkets [63][64] - The company expects cash flow to strengthen further due to improving rents and development deliveries [16][45] - Management highlighted a solid foundation for growth, with ample liquidity to fund future initiatives [20][49] Other Important Information - The company announced a dividend increase for the fourth consecutive year to an annualized rate of $1.92 per share [16][46] - The balance sheet remains strong, with a debt-to-EBITDA ratio of 5.2x at year-end [47] - The company has filed a new S-3 shelf registration statement for future capital markets transactions [50] Q&A Session Summary Question: Why was the dividend raised by only 1% despite expectations of cash flow improvement? - Management indicated that higher CapEx in recent quarters influenced the decision, balancing cash flow outlook with taxable income [56][58] Question: How does the current business environment compare to last year? - Management noted that business fundamentals feel equally strong compared to last year, with good demand and tour activity across markets [63][64] Question: What is the outlook for phase two asset sales? - Management is optimistic about phase two, with discussions ongoing and a disposition guidance of $100 million to $150 million [66][67] Question: Can you provide details on the completed Memphis/Greensboro dispositions? - The company reported successful sales with yields meeting expectations, indicating a positive outcome for phase one [90][91] Question: What are the pricing expectations for the Pittsburgh and Richmond land acquisitions? - Management indicated low basis costs for the Richmond land and full entitlement for the Pittsburgh site, suggesting strong potential for development [76][70]