HIGHWOODS PROPERTIES, INC. - 2023 10-K Summary for Investors

Business Overview Highwoods Properties, Inc. (NYSE: HWD) delivers value as a premier real estate investment trust (REIT), a company that owns and often operates income-producing real estate. We specialize in owning, developing, acquiring, and managing high-quality office properties across the vibrant, high-growth Sun Belt markets of the United States. At year-end 2023, Highwoods owned or held an interest in 105 office properties, encompassing approximately 26.5 million square feet, along with substantial development land. Our strategy centers on creating value through disciplined development, strategic acquisitions, and active portfolio management within these key markets.

Financial Performance Highwoods reported strong financial results for the fiscal year ended December 31, 2023, with total revenues reaching approximately $815 million. Funds From Operations (FFO), a crucial measure of profitability for REITs, was $3.55 per diluted share. The company demonstrated its dedication to shareholder returns by declaring total dividends of $2.00 per share for the year, representing a payout ratio of approximately 56% of FFO – meaning it distributed 56% of its FFO as dividends.

Financial Health Highwoods maintained a robust financial position at year-end 2023, with a net debt to Adjusted EBITDA ratio of 6.2x. This ratio, which compares debt to earnings before interest, taxes, depreciation, and amortization, indicates the company's ability to cover its debt. We reported ample liquidity exceeding $600 million, comprising cash and available credit from our revolving credit facility. Management proactively monitors the debt maturity profile and manages the capital structure to ensure financial flexibility and support ongoing operations and growth.

Management Discussion & Analysis (MD&A) Highlights Management emphasized the company's strategic focus on high-growth Sun Belt markets: Raleigh, Atlanta, Nashville, Charlotte, Tampa, Orlando, and Richmond. These markets feature strong population and job growth, attracting a diverse tenant base from technology, healthcare, and financial services. This diversification enhances the portfolio's resilience.

At year-end 2023, the portfolio achieved a strong occupancy rate of 90.8% and a weighted average lease term of 6.5 years, indicating stable cash flows and effective lease management. Highwoods drove growth in 2023 through a disciplined development pipeline and strategic capital recycling. We completed development projects totaling 650,000 square feet with an average pre-leasing rate of 75%. The company also actively managed its portfolio by opportunistically selling non-core assets (known as dispositions), generating approximately $150 million in proceeds during 2023. Highwoods primarily used these proceeds to fund new development and reduce debt, demonstrating its commitment to optimizing asset quality and financial leverage.

Risk Factors Investors should consider several key risks. The office real estate market faces ongoing challenges from hybrid work models, potentially impacting future occupancy rates and rental growth. Rising interest rates may increase borrowing costs and affect property valuations. Economic downturns could reduce tenant demand and increase credit risk.

Highwoods addresses these risks by focusing on high-quality, amenity-rich properties in resilient Sun Belt markets, maintaining a diversified tenant base, employing proactive lease management, and adhering to a conservative balance sheet strategy. The company also prioritizes sustainable building practices and energy efficiency to enhance asset value and attract environmentally conscious tenants.

Future Outlook Highwoods anticipates sustained demand for its premium office spaces in its target markets. We expect to leverage our development expertise and strong market relationships to drive FFO growth and maintain our attractive dividend distribution, positioning the company for long-term shareholder value creation. Our current development pipeline includes projects totaling approximately 1.2 million square feet, representing an estimated investment of $350 million. These projects have an average pre-leasing rate of 45% and expected completion dates extending through 2025, which we anticipate will contribute to future growth.

Competitive Position Highwoods maintains a strong competitive position by focusing on high-quality, amenity-rich office properties within select, high-growth Sun Belt markets. This strategic geographic concentration helps the company capitalize on robust population and job growth trends, which often exceed national averages. Our expertise in development and redevelopment allows us to deliver modern, in-demand office spaces that attract and retain a diverse tenant base, including leading companies in technology, healthcare, and financial services. Proactive portfolio management, including strategic dispositions (asset sales) and a disciplined approach to new development, further strengthens our competitive standing by ensuring a high-quality, relevant asset base.