HIGHWOODS PROPERTIES INC

Results of Operations

Three Months Ended September 30, 2024 and 2023

Rental and Other Revenues

Rental and other revenues were $2.8 million, or 1.3%, lower in the third quarter of 2024 as compared to 2023 primarily due to lost revenue from property dispositions and lower consolidated same property revenues, which decreased rental and other revenues by $3.5 million and $0.2 million, respectively. This decrease was partially offset by recently completed development projects, which increased rental and other revenues by $0.8 million. Same property rental and other revenues were lower primarily due to a decrease in occupancy, lower cost recoveries and higher credit losses, partially offset by higher average GAAP rents per rentable square foot and higher parking income.

Operating Expenses

Rental property and other expenses were $1.5 million, or 2.2%, lower in the third quarter of 2024 as compared to 2023 primarily due to property dispositions and lower consolidated same property expenses, which decreased operating expenses by $1.3 million and $0.6 million, respectively. These decreases were partially offset by a $0.2 million increase in operating expenses from recently completed development projects. Same property operating expenses were lower primarily due to lower taxes, partially offset by higher contract services, utilities, and repairs and maintenance.

Depreciation and amortization expense was $4.4 million, or 5.8%, higher in the third quarter of 2024 as compared to 2023 primarily due to accelerated depreciation and amortization of tenant improvements and deferred leasing costs associated with the cancellation of a lease with a backfill customer for 110,000 square feet in the former Tivity building in Nashville that was originally scheduled to commence in the third quarter of 2024. This increase was partially offset by property dispositions.

General and administrative expenses were $1.0 million, or 11.6%, higher in the third quarter of 2024 as compared to 2023 primarily due to higher incentive compensation and gains on deferred compensation plan investments (which is fully offset by a corresponding increase in other income).

Interest Expense

Interest expense was $3.2 million, or 9.4%, higher in the third quarter 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 $1.1 million higher in the third quarter of 2024 as compared to 2023 primarily due to higher interest income from seller financing and loans provided to the 2827 Peachtree and Midtown East joint ventures and gains on deferred compensation plan investments (which is fully offset by a corresponding increase in general and administrative expenses).

Gains on Disposition of Property

Gains on disposition of property were $0.4 million higher in the third quarter of 2024 as compared to 2023.

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates was $0.7 million higher in the third quarter of 2024 as compared to 2023 primarily due to lower interest expense from our McKinney and Olive joint venture due to the payoff of a mortgage loan in the third quarter of 2024 and higher 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 $0.07 lower in the third quarter of 2024 as compared to 2023 due to a decrease in net income for the reasons discussed above.

Nine Months Ended September 30, 2024 and 2023

Rental and Other Revenues

Rental and other revenues were $6.8 million, or 1.1%, lower in the nine months ended September 30, 2024 as compared to 2023 primarily due to lost revenue from property dispositions, which decreased rental and other revenues by $10.7 million. This decrease was partially offset by higher consolidated same property revenues and recently completed development projects, which increased rental and other revenues by $2.5 million and $2.2 million, respectively. Same property rental and other revenues were higher primarily due to higher average GAAP rents per rentable square foot, higher cost recoveries and higher parking income, partially offset by a decrease in average occupancy.

Operating Expenses

Rental property and other expenses were $1.5 million, or 0.7%, higher in the nine months ended September 30, 2024 as compared to 2023 primarily due to $5.3 million of higher consolidated same property operating expenses, partially offset by a $3.5 million decrease in operating expenses from property dispositions. Same property operating expenses were higher primarily due to higher contract services, utilities, property insurance and repairs and maintenance, partially offset by lower taxes.

Depreciation and amortization expense was $6.1 million, or 2.8%, higher in the nine months ended September 30, 2024 as compared to 2023 primarily due to accelerated depreciation and amortization of tenant improvements and deferred leasing costs associated with the cancellation of a lease with a backfill customer for 110,000 square feet in the former Tivity building in Nashville that was originally scheduled to commence in the third quarter of 2024, higher consolidated same property lease related depreciation and amortization and recently completed development projects, partially offset by property dispositions.

General and administrative expenses were $1.1 million, or 3.5%, higher in the nine months ended September 30, 2024 as compared to 2023 primarily due to higher incentive compensation and gains on deferred compensation plan investments (which is fully offset by a corresponding increase in other income).

Interest Expense

Interest expense was $8.5 million, or 8.4%, higher in the nine months ended September 30, 2024 as compared to 2023 primarily due to higher average interest rates and higher average debt balances.

Other Income

Other income was $7.5 million higher in the nine months ended September 30, 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. We also earned higher interest income from seller financing and loans provided to the 2827 Peachtree and Midtown East joint ventures and recognized gains on deferred compensation plan investments (which is fully offset by a corresponding increase in general and administrative expenses).

Gains on Disposition of Property

Gains on disposition of property were $22.8 million higher in the nine months ended September 30, 2024 as compared to 2023.

Gain on Deconsolidation of Affiliate

We recognized a gain on deconsolidation of $11.8 million in the nine months ended September 30, 2023 related to adjusting our retained interest in the Markel joint venture to fair value. We recorded no such gain on deconsolidation in the nine months ended September 30, 2024.

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates was $1.0 million higher in the nine months ended September 30, 2024 as compared to 2023 primarily due to higher income from our 2827 Peachtree joint venture, which was completed in the third quarter of 2023, and lower interest expense from our McKinney and Olive joint venture due to the payoff of a mortgage loan in the third quarter of 2024. These increases were 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 $0.05 lower in the nine months ended September 30, 2024 as compared to 2023 due to a decrease in net income for the reasons discussed above.