HIGHWOODS PROPERTIES INC

Results of Operations

Three Months Ended March 31, 2024 and 2023

Rental and Other Revenues

Rental and other revenues were $1.5 million, or 0.7%, lower in the first quarter of 2024 as compared to 2023 primarily due to lost revenue from property dispositions, which decreased rental and other revenues by $2.9 million. This decrease was partially offset by higher consolidated same property revenues and development properties placed in service, which increased rental and other revenues by $1.5 million and $0.6 million, respectively. Same property rental and other revenues were higher primarily due to higher average GAAP rents per rentable square foot and higher cost recoveries, partially offset by a decrease in average occupancy. We expect rental and other revenues to be lower for the remainder of 2024 as compared to 2023 for similar reasons.

Operating Expenses

Rental property and other expenses were $4.7 million, or 7.2%, higher in the first quarter of 2024 as compared to 2023 primarily due to $6.1 million of higher consolidated same property operating expenses, primarily due to higher property taxes, repairs and maintenance, contract services, property insurance and utilities. This increase was partially offset by a $0.9 million decrease in operating expenses from property dispositions. We expect rental property and other expenses to be higher for the remainder of 2024 as compared to 2023 for similar reasons.

Depreciation and amortization was $3.0 million, or 4.3%, higher in the first quarter of 2024 as compared to 2023 primarily due to higher consolidated same property lease related depreciation and amortization and development properties placed in service, partially offset by property dispositions. We expect depreciation and amortization to be lower for the remainder of 2024 as compared to 2023 primarily due to property dispositions and fully amortized acquisition-related intangible assets, partially offset by higher same property lease related depreciation and amortization and development properties placed in service.

General and administrative expenses were $0.1 million, or 0.7%, higher in the first quarter of 2024 as compared to 2023 primarily due to higher long-term equity incentive compensation. We expect general and administrative expenses to be lower for the remainder of 2024 as compared to 2023 due to lower predevelopment cost write-offs, partially offset by higher salaries and benefits. First quarter general and administrative expenses are typically higher than in subsequent quarters due to higher long-term equity incentive compensation recognized for certain employees who meet the age and service eligibility requirements under our retirement plan. Long-term equity incentive compensation awards are typically issued during the first quarter of each year.

Interest Expense

Interest expense was $3.5 million, or 10.4%, higher in the first quarter of 2024 as compared to 2023 primarily due to higher average interest rates and higher average debt balances, partially offset by higher capitalized interest. We expect interest expense to be higher for the remainder of 2024 as compared to 2023 primarily due to higher average interest rates, higher average debt balances and lower capitalized interest.

Other Income

Other income was $0.1 million higher in the first quarter of 2024 as compared to 2023 primarily due to higher interest income from seller financing and the loan provided to the 2827 Peachtree joint venture, partially offset by 2023 dividend income from short-term preferred equity contributed to the McKinney and Olive joint venture.

Gains on Disposition of Property

Gains on disposition of property were $6.8 million higher in the first quarter of 2024 as compared to 2023.

Gain on Deconsolidation of Affiliate

We recognized a gain on deconsolidation of $11.8 million in the first quarter of 2023 related to adjusting our retained interest in the Markel joint venture to fair value. We recorded no such gain on deconsolidation in 2024.

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates was $0.1 million lower in the first quarter of 2024 as compared to 2023 primarily due to expenses on Granite Park Six, which was completed in the third quarter of 2023 but is not yet stabilized. This decrease was partially offset by income from our 2827 Peachtree joint venture, which was completed in the third quarter of 2023.

Earnings Per Common Share - Diluted

Diluted earnings per common share was $0.17 lower in the first quarter of 2024 as compared to 2023 due to a decrease in net income for the reasons discussed above.