Highwoods (HIW) Q3 FFO Matches Estimates, Revenues Beat
Highwoods Properties Inc. HIW reported third-quarter 2023 funds from operations (FFO) per share of 93 cents, in line with the Zacks Consensus Estimate. However, the figure was lower than the prior-year quarter’s $1.04.
The company’s quarterly results reflect rent growth. However, a fall in occupancy and higher operating expenses acted as dampeners. It also revised its outlook for 2023.
Rental and other revenues came in at $207.1 million, surpassing the Zacks Consensus Estimate of $207 million.
On a year-over-year basis, although rental and other revenues improved marginally, FFO per share fell 10.6%.
According to Ted Klinck, president and CEO of HIW, “We delivered solid financial and operating results during the quarter, generating FFO of $0.93 per share and growing same property cash NOI 2.0%. Given the steady performance of our 28.5 million square foot operating portfolio, we are maintaining the midpoint of our 2023 FFO outlook even as interest rates have continued to move higher. Additionally, we further solidified our strong balance sheet by increasing our liquidity subsequent to quarter-end.”
Quarter in Detail
Highwoods leased 655,000 square feet of second-generation office space in the third quarter, including 152,000 square feet of new leases. Moreover, the present development pipeline, which covers around 1.6 million square feet, aggregates $518 million (at HIW share). It is 25% pre-leased on a dollar-weighted basis.
Operating expenses were $150.8 million, marginally up on a year-over-year basis. We estimated the same to be $156.6 million.
The average in-place cash rent was up 5.1% per square foot from the prior-year quarter, while the dollar-weighted average term was 5.4 years.
At the end of the reported quarter, HIW’s in-service portfolio occupancy (consolidated) declined 210 basis points year over year to 88.6%. We estimated the same to be 89%.
The same-property cash net operating income (NOI) increased 2% year over year to $132.6 million.
Balance-Sheet Position
The company exited the third quarter with $16.9 million of cash and cash equivalents, down from $17 million reported as of June 30, 2023.
The reported net debt-to-adjusted EBITDAre ratio was 6 compared with 5.98 at the end of Jun 30, 2023.
Revised 2023 Guidance
Highwoods revised its guidance for 2023.
The company now expects FFO per share to be in the range of $3.73-$3.77, revised from the prior guided range of $3.69-$3.81. The Zacks Consensus Estimate for the same is currently pegged at $3.78.
HIW expects its same-property cash NOI, excluding termination fees and the net impact of temporary rent deferrals for the current year, to be between 0% and 1%. The year-end occupancy projection is expected to be in the range of 88.5-90%, unchanged from the prior guided range.
Highwoods currently carries a Zacks Rank #3 (Hold).
Highwoods Properties, Inc. Price, Consensus and EPS Surprise
Highwoods Properties, Inc. price-consensus-eps-surprise-chart | Highwoods Properties, Inc. Quote
Upcoming Earnings Releases
We are looking forward to the earnings releases of other REITs like SBA Communications SBAC and Welltower WELL, which are slated to report their results on Nov 2 and Oct 30, respectively.
The Zacks Consensus Estimate for SBA Communications’ third-quarter 2023 FFO per share is pegged at $3.23, suggesting year-over-year growth of 4.2%. SBAC currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s third-quarter 2023 FFO per share is pegged at 89 cents, implying a year-over-year increase of 6%. WELL currently carries a Zacks Rank of #2 (Buy).
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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