HIGHWOODS PROPERTIES INC

Statements of Cash Flows

We report and analyze our cash flows based on operating activities, investing activities and financing activities. The following table sets forth the changes in the Company’s cash flows (in thousands):

The change in net cash provided by operating activities in the nine months ended September 30, 2024 as compared to 2023 was primarily due to net cash from the operations of consolidated same properties and recently completed development projects and changes in operating assets and liabilities, partially offset by property dispositions and higher interest expense.

The change in net cash used in investing activities in the nine months ended September 30, 2024 as compared to 2023 was primarily due to the redemption of our short-term preferred equity investment in the McKinney and Olive joint venture in 2023, contributions to the McKinney and Olive joint venture in 2024 to pay off a mortgage loan, contributions to the Granite Park Six joint venture in 2024 to pay down a construction loan and higher investments in tenant improvements and deferred leasing costs in 2024. These changes were partially offset by higher net proceeds from disposition activity and lower investments in building improvements and development in process.

The change in net cash used in financing activities in the nine months ended September 30, 2024 as compared to 2023 was primarily due to higher net debt borrowings.

Capitalization

The following table sets forth the Company’s capitalization (in thousands, except per share amounts):

As of September 30, 2024, our mortgages and notes payable and outstanding preferred stock represented 47.8% of our total capitalization and 42.3% of the undepreciated book value of our assets. See also “Executive Summary - Liquidity and Capital Resources.”

Our mortgages and notes payable as of September 30, 2024 consisted of $714.4 million of secured indebtedness with a weighted average interest rate of 4.43% and $2,596.4 million of unsecured indebtedness with a weighted average interest rate of 4.55%. The secured indebtedness was collateralized by real estate assets with an undepreciated book value of $1,243.1 million. As of September 30, 2024, $455.0 million of our debt bears interest at floating rates.

Investment Activity

In the normal course of business, we regularly evaluate potential acquisitions. As a result, from time to time, we may have one or more potential acquisitions under consideration that are in varying stages of evaluation, negotiation or due diligence, including potential acquisitions that are subject to non-binding letters of intent or enforceable contracts. Consummation of any transaction is subject to a number of contingencies, including the satisfaction of customary closing conditions. No assurances can be provided that we will acquire any properties in the future. See “Item 1A. Risk Factors - Risks Related to our Capital Recycling Activity - Recent and future acquisitions and development properties may fail to perform in accordance with our expectations and may require renovation and development costs exceeding our estimates” in our 2023 Annual Report on Form 10-K

During the third quarter of 2024, we completed our exit from the Greensboro market by selling our last remaining land parcel for a sales price of $4.5 million and recorded a gain on disposition of property of $0.4 million.

We have a 50% interest in the McKinney & Olive joint venture. During the third quarter of 2024, the McKinney & Olive joint venture paid off at maturity the remaining $134.3 million balance on a secured mortgage loan with a stated interest rate of 4.5% and an effective interest rate of 5.3%. In connection with this loan payoff, we and Granite each contributed $62.1 million to the joint venture.

We have a 50% interest in the Granite Park Six joint venture. During the third quarter of 2024, the Granite Park Six joint venture paid down the outstanding $70.9 million balance with respect to a $115 million construction loan obtained in 2022. The loan, which matures in January 2026, has an interest rate of SOFR plus 394 basis points. In connection with this loan paydown, we and Granite each contributed $35.5 million to the joint venture.

As of September 30, 2024, we were developing 0.8 million rentable square feet of office properties. The following table summarizes these announced and in-process office developments:

(1)Includes estimated lease up costs for tenant improvements and lease commissions until the property has reached stabilization.

(2)Recorded on our consolidated balance sheet as land held for development, not development-in-process.

Financing Activity

During 2023, we entered into separate equity distribution agreements with each of Wells Fargo Securities, LLC, BofA Securities, Inc., BTIG, LLC, Jefferies LLC, J.P. Morgan Securities LLC, Regions Securities LLC, TD Securities (USA) LLC and Truist Securities, Inc. Under the terms of the equity distribution agreements, the Company may offer and sell up to $300.0 million in aggregate gross sales price of shares of Common Stock from time to time through such firms, acting as agents of the Company or as principals. Sales of the shares, if any, may be made by means of ordinary brokers’ transactions on the New York Stock Exchange (“NYSE”) or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of such firms (which may include block trades). During the third quarter of 2024, there were no shares of common stock issued under these agreements.

Our $750.0 million unsecured revolving credit facility was modified during the first quarter of 2024 and is now scheduled to mature in January 2028 (but can be extended for two additional six-month periods at our option assuming no defaults have occurred). The interest rate on our revolving credit facility is SOFR plus a related spread adjustment of 10 basis points and a borrowing spread of 85 basis points, based on current credit ratings. The annual facility fee is 20 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. We incurred $7.7 million of debt issuance costs during the first quarter of 2024, which will be amortized along with certain existing unamortized debt issuance costs over the remaining term of our new revolving credit facility, and recorded $0.2 million of loss on debt extinguishment. During the second quarter of 2024, we modified the revolving credit facility to provide that the interest rate may be adjusted upward or downward by 2.5 basis points depending upon whether or not we achieve certain pre-determined sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. There was $105.0 million and $98.0 million outstanding under our revolving credit facility as of September 30, 2024 and October 15, 2024, respectively. As of both September 30, 2024 and October 15, 2024, we had $0.1 million of outstanding letters of credit, which reduce the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility as of September 30, 2024 and October 15, 2024 was $644.9 million and $651.9 million, respectively.

We are currently in compliance with financial covenants and other requirements with respect to our consolidated debt. Although we expect to remain in compliance with these covenants and ratios for at least the next year, depending upon our future operating performance, property and financing transactions and general economic conditions, we cannot provide any assurances that we will continue to be in compliance.

Our revolving credit facility and bank term loans require us to comply with customary operating covenants and various financial requirements. Upon an event of default on our revolving credit facility, the lenders having at least 51.0% of the total commitments under our revolving credit facility can accelerate all borrowings then outstanding, and we could be prohibited from borrowing any further amounts under our revolving credit facility, which would adversely affect our ability to fund our operations. In addition, certain of our unsecured debt agreements contain cross-default provisions giving the unsecured lenders the right to declare a default if we are in default under more than $35.0 million with respect to other loans in some circumstances.

The indenture that governs the Operating Partnership’s outstanding notes requires us to comply with customary operating covenants and various financial ratios. The trustee or the holders of at least 25.0% in principal amount of any series of notes can accelerate the principal amount of such series upon written notice of a default that remains uncured after 60 days.

We may not be able to repay, refinance or extend any or all of our debt at maturity or upon any acceleration. If any refinancing is done at higher interest rates, the increased interest expense could adversely affect our cash flow and ability to pay distributions. Any such refinancing could also impose tighter financial ratios and other covenants that restrict our ability to take actions that could otherwise be in our best interest, such as funding new development activity, making opportunistic acquisitions, repurchasing our securities or paying distributions.

Dividends and Distributions

To maintain its qualification as a REIT, the Company must pay dividends to stockholders that are at least 90.0% of its annual REIT taxable income, excluding net capital gains. The partnership agreement requires the Operating Partnership to distribute at least enough cash for the Company to be able to pay such dividends. The Company’s REIT taxable income, as determined by the federal tax laws, does not equal its net income under accounting principles generally accepted in the United States of America (“GAAP”). In addition, although capital gains are not required to be distributed to maintain REIT status, capital gains, if any, are subject to federal and state income tax unless such gains are distributed to stockholders.

Cash dividends and distributions reduce the amount of cash that would otherwise be available for other business purposes, including funding debt maturities, reducing debt or future growth initiatives. The amount of future distributions that will be made is at the discretion of the Company’s Board of Directors. For a discussion of the factors that will affect such cash flows and, accordingly, influence the decisions of the Company’s Board of Directors regarding dividends and distributions, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Dividends and Distributions” in our 2023 Annual Report on Form 10-K.

On October 21, 2024, the Company declared a cash dividend of $0.50 per share of Common Stock, which is payable on December 10, 2024 to stockholders of record as of November 18, 2024.

During the third quarter of 2024, the Company declared and paid a cash dividend of $0.50 per share of Common Stock.

Current and Future Cash Needs

We anticipate that our available cash and cash equivalents, cash flows from operating activities and other available financing sources, including the issuance of debt securities by the Operating Partnership, the issuance of secured debt, bank term loans, borrowings under our revolving credit facility, the issuance of equity securities by the Company or the Operating Partnership and the disposition of non-core assets, will be adequate to meet our short-term liquidity requirements. We generally believe existing cash and rental and other revenues will continue to be sufficient to fund operating and general and administrative expenses, interest expense, our existing quarterly dividend and existing portfolio capital expenditures, including building improvement costs, tenant improvement costs and lease commissions.

We had $23.7 million of cash and cash equivalents as of September 30, 2024. The unused capacity of our revolving credit facility as of September 30, 2024 and October 15, 2024 was $644.9 million and $651.9 million, respectively.

We have a currently effective automatic shelf registration statement on Form S-3 with the SEC pursuant to which, at any time and from time to time, in one or more offerings on an as-needed basis, the Company may sell an indefinite amount of common stock, preferred stock and depositary shares and the Operating Partnership may sell an indefinite amount of debt securities, subject to our ability to effect offerings on satisfactory terms based on prevailing market conditions.

From time to time, the Company enters into equity distribution agreements with a variety of firms pursuant to which the Company may offer and sell shares of common stock through such firms, acting as agents of the Company or as principals. Sales of the shares, if any, may be made by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of such firms (which may include block trades).

During the remainder of 2024, we expect to sell up to $150 million of properties no longer considered to be core assets due to location, age, quality and/or overall strategic fit. We can make no assurance, however, that we will sell any additional non-core assets or, if we do, what the timing or terms of any such sale will be.

See also “Executive Summary - Liquidity and Capital Resources.”