HIGHWOODS PROPERTIES INC

Results of Operations

Three Months Ended June 30, 2024 and 2023

Rental and Other Revenues

Rental and other revenues were $2.6 million, or 1.2%, lower in the second quarter of 2024 as compared to 2023 primarily due to lost revenue from property dispositions, which decreased rental and other revenues by $4.4 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 $1.3 million and $0.8 million, respectively. Same property rental and other revenues were higher primarily due to higher average GAAP rents per rentable square foot, 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 due to lost revenue from property dispositions and lower anticipated consolidated same property revenues, partially offset by development properties placed in service.

Operating Expenses

Rental property and other expenses were $1.7 million, or 2.6%, lower in the second quarter of 2024 as compared to 2023 primarily due to a $1.3 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 due to higher anticipated consolidated same property operating expenses and development properties placed in service, partially offset by a decrease in operating expenses from property dispositions.

Depreciation and amortization expense was $1.3 million, or 1.7%, lower in the second quarter of 2024 as compared to 2023 primarily due to property dispositions. We expect depreciation and amortization expense to be higher for the remainder of 2024 as compared to 2023 primarily due to higher same property lease related depreciation and amortization and development properties placed in service, partially offset by property dispositions.

General and administrative expenses were $0.1 million, or 0.2%, lower in the second quarter of 2024 as compared to 2023. 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.

Interest Expense

Interest expense was $1.8 million, or 5.4%, higher in the second quarter of 2024 as compared to 2023 primarily due to higher average interest rates. 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 $6.3 million higher in the second quarter of 2024 as compared to 2023 primarily due to a refund of $5.8 million in the aggregate of Tennessee franchise taxes paid for the 2020 through 2023 tax years. During the second quarter of 2024, the State of Tennessee modified the methodology for calculating franchise taxes. The modification lowers our annual franchise tax obligation and was allowed to be applied retrospectively back to 2020.

Gains on Disposition of Property

Gains on disposition of property were $15.7 million higher in the second quarter of 2024 as compared to 2023.

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates was $0.3 million higher in the second quarter of 2024 as compared to 2023 primarily due to 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 $0.19 higher in the second quarter of 2024 as compared to 2023 due to an increase in net income for the reasons discussed above.

Six Months Ended June 30, 2024 and 2023

Rental and Other Revenues

Rental and other revenues were $4.0 million, or 1.0%, lower in the first six months of 2024 as compared to 2023 primarily due to lost revenue from property dispositions, which decreased rental and other revenues by $7.2 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 $2.8 million and $1.4 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.

Operating Expenses

Rental property and other expenses were $3.0 million, or 2.2%, higher in the first six months of 2024 as compared to 2023 primarily due to $5.8 million of higher consolidated same property operating expenses, partially offset by a $2.2 million decrease in operating expenses from property dispositions. Same property operating expenses were higher primarily due to higher contract services, property insurance, utilities and repairs and maintenance.

Depreciation and amortization expense was $1.8 million, or 1.2%, higher in the first six months 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.

General and administrative expenses were $0.1 million, or 0.3%, higher in the first six months of 2024 as compared to 2023.

Interest Expense

Interest expense was $5.3 million, or 7.9%, higher in the first six months of 2024 as compared to 2023 primarily due to higher average interest rates, partially offset by higher capitalized interest.

Other Income

Other income was $6.4 million higher in the first six months of 2024 as compared to 2023 primarily due to a refund of $5.8 million in the aggregate of Tennessee franchise taxes paid for the 2020 through 2023 tax years. During the second quarter of 2024, the State of Tennessee modified the methodology for calculating franchise taxes. The modification lowers our annual franchise tax obligation and was allowed to be applied retrospectively back to 2020.

Gains on Disposition of Property

Gains on disposition of property were $22.4 million higher in the first six months of 2024 as compared to 2023.

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates was $0.3 million higher in the first six months of 2024 as compared to 2023 primarily due to income from our 2827 Peachtree joint venture, which was completed in the third quarter of 2023. This increase was partially offset by expenses on Granite Park Six, which was completed in the third quarter of 2023 but is not yet stabilized.

Earnings Per Common Share - Diluted

Diluted earnings per common share was $0.02 higher in the first six months of 2024 as compared to 2023 due to an increase in net income for the reasons discussed above.