HIGHWOODS PROPERTIES INC

Previous wording

Our operating results depend heavily on successfully leasing and operating the office space in our portfolio. Economic growth and office employment levels in our core markets are important factors, among others, in predicting our future operating results. The key components affecting our rental and other revenues are average occupancy, rental rates, cost recovery income, new developments placed in service, acquisitions and dispositions. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower or negative economic growth, when new vacancies tend to outpace our ability to lease space. Asset acquisitions, dispositions and new developments placed in service directly impact our rental revenues and could impact our average occupancy, depending upon the occupancy rate of the properties that are acquired, sold or placed in service. Another indicator of the predictability of future revenues is the expected lease expirations of our portfolio. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also concentrate our leasing efforts on renewing existing leases prior to expiration. For more information regarding our lease expirations, see “Item 2. Properties - Lease Expirations” and “Item 1A. Risk Factors – Risks Related to our Operations. The continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements could materially and negatively impact the future demand for office space over the long-term” in our 2023 Annual Report on Form 10-K. Occupancy in our office portfolio decreased from 88.9% as of December 31, 2023 to 88.5% as of March 31, 2024. We expect average occupancy in our office portfolio to range from 87.0% to 89.0% for the remainder of 2024.

Current wording

Our operating results depend heavily on successfully leasing and operating the office space in our portfolio. Economic growth and office employment levels in our core markets are important factors, among others, in predicting our future operating results. The key components affecting our rental and other revenues are average occupancy, rental rates, cost recovery income, new developments placed in service, acquisitions and dispositions. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower or negative economic growth, when new vacancies tend to outpace our ability to lease space. Asset acquisitions, dispositions and new developments placed in service directly impact our rental revenues and could impact our average occupancy, depending upon the occupancy rate of the properties that are acquired, sold or placed in service. Another indicator of the predictability of future revenues is the expected lease expirations of our portfolio. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also concentrate our leasing efforts on renewing existing leases prior to expiration. For more information regarding our lease expirations, see “Item 2. Properties - Lease Expirations” and “Item 1A. Risk Factors – Risks Related to our Operations. The continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements could materially and negatively impact the future demand for office space over the long-term” in our 2023 Annual Report on Form 10-K. Occupancy in our office portfolio decreased from 88.9% as of December 31, 2023 to 88.5% as of June 30, 2024. We expect average occupancy in our office portfolio to range from 87.0% to 88.0% for the remainder of 2024.

Previous wording

Whether or not our rental revenue tracks average occupancy proportionally depends upon whether GAAP rents under signed new and renewal leases are higher or lower than the GAAP rents under expiring leases. Annualized rental revenues from second generation leases expiring during any particular year are typically less than 15% of our total annual rental revenues. The following table sets forth information regarding second generation office leases signed during the first quarter of 2024 (we define second generation office leases as leases with new customers and renewals of existing customers in both consolidated and unconsolidated office space that has been previously occupied and leases with respect to vacant space in acquired buildings):

Current wording

Whether or not our rental revenue tracks average occupancy proportionally depends upon whether GAAP rents under signed new and renewal leases are higher or lower than the GAAP rents under expiring leases. Annualized rental revenues from second generation leases expiring during any particular year are typically less than 15% of our total annual rental revenues. The following table sets forth information regarding second generation office leases signed during the second quarter of 2024 (we define second generation office leases as leases with new customers and renewals of existing customers in both consolidated and unconsolidated office space that has been previously occupied and leases with respect to vacant space in acquired buildings):

Previous wording

Annual combined GAAP rents for new and renewal leases signed in the first quarter were $30.69 per rentable square foot, 6.6% higher compared to previous leases in the same office spaces.

Current wording

Annual combined GAAP rents for new and renewal leases signed in the second quarter were $31.00 per rentable square foot, 9.4% higher compared to previous leases in the same office spaces.

Previous wording

We strive to maintain a diverse, stable and creditworthy customer base. We have an internal guideline whereby customers that account for more than 3% of our revenues are periodically reviewed with the Company’s Board of Directors. As of March 31, 2024, only Bank of America (3.9%) and Asurion (3.4%) accounted for more than 3% of our annualized GAAP revenues.

Current wording

We strive to maintain a diverse, stable and creditworthy customer base. We have an internal guideline whereby customers that account for more than 3% of our revenues are periodically reviewed with the Company’s Board of Directors. As of June 30, 2024, only Bank of America (3.8%) and Asurion (3.5%) accounted for more than 3% of our annualized GAAP revenues.

Previous wording

Whether or not we record increasing net operating income (“NOI”) in our same property portfolio typically depends upon our ability to garner higher rental revenues, whether from higher average occupancy, higher GAAP rents per rentable square foot or higher cost recovery income, that exceed any corresponding growth in operating expenses. Consolidated same property NOI was $4.6 million, or 3.2%, lower in the first quarter of 2024 as compared to 2023 due to an increase of $6.1 million in same property expenses offset by an increase of $1.5 million in same property revenue. We expect same property NOI to be lower for the remainder of 2024 as compared to 2023 primarily due to an anticipated increase in same property expenses and lower anticipated average occupancy. We expect same property expenses to be higher due to anticipated increases to property taxes, contract services and property insurance.

Current wording

Whether or not we record increasing net operating income (“NOI”) in our same property portfolio typically depends upon our ability to garner higher rental revenues, whether from higher average occupancy, higher GAAP rents per rentable square foot or higher cost recovery income, that exceed any corresponding growth in operating expenses. Consolidated same property NOI was $1.5 million, or 1.1%, higher in the second quarter of 2024 as compared to 2023 due to an increase of $1.3 million in same property revenue and a decrease of $0.2 million in same property expenses. We expect same property NOI to be lower for the remainder of 2024 as compared to 2023 primarily due to an anticipated increase in same property expenses and lower anticipated average occupancy. We expect same property expenses to be higher due to anticipated increases to contract services.

Previous wording

In addition to the effect of consolidated same property NOI, whether or not NOI increases typically depends upon whether the NOI from our acquired properties and development properties placed in service exceeds the NOI from property dispositions. NOI was $6.2 million, or 4.2%, lower in the first quarter of 2024 as compared to 2023 primarily due to lower consolidated same property NOI and lost NOI from property dispositions, partially offset by development properties placed in service. We expect NOI to be lower for the remainder of 2024 as compared to 2023 for similar reasons.

Current wording

In addition to the effect of consolidated same property NOI, whether or not NOI increases typically depends upon whether the NOI from our acquired properties and development properties placed in service exceeds the NOI from property dispositions. NOI was $0.8 million, or 0.6%, lower in the second quarter of 2024 as compared to 2023 primarily due to lost NOI from property dispositions, partially offset by higher consolidated same property NOI and development properties placed in service. We expect NOI to be lower for the remainder of 2024 as compared to 2023 due to lost NOI from property dispositions and lower anticipated consolidated same property NOI, partially offset by development properties placed in service.

Previous wording

We continue to maintain a conservative and flexible balance sheet and believe we have ample liquidity to fund our operations and growth prospects. As of April 16, 2024, we had approximately $17 million of existing cash and $10.0 million drawn on our $750.0 million revolving credit facility, which is scheduled to mature in January 2028 (but which can be extended for two additional six-month periods at our option). As of March 31, 2024, our leverage ratio, as measured by the ratio of our mortgages and notes payable and outstanding preferred stock to the undepreciated book value of our assets, was 42.2%, and there were 108.1 million diluted shares of Common Stock outstanding.

Current wording

We continue to maintain a conservative and flexible balance sheet and believe we have ample liquidity to fund our operations and growth prospects. As of July 16, 2024, we had approximately $21 million of existing cash and $82.0 million drawn on our $750.0 million revolving credit facility, which is scheduled to mature in January 2028 (but which can be extended for two additional six-month periods at our option). As of June 30, 2024, our leverage ratio, as measured by the ratio of our mortgages and notes payable and outstanding preferred stock to the undepreciated book value of our assets, was 41.5%, and there were 108.2 million diluted shares of Common Stock outstanding.