UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from [ ] to [ ]
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
|
| | | | | | | |
Maryland | Maryland001-13100 | 001-13100 | 56-1871668 | |
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification Number) | |
HIGHWOODS REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
|
| | | | | | | |
| North Carolina | 000-21731 | 56-1869557 | |
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification Number) | |
3100 Smoketree Court,150 Fayetteville Street, Suite 6001400
Raleigh, NC 2760427601
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrants’ telephone number, including area code)
_________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock, $.01 par value, of Highwoods Properties, Inc. | HIW | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Highwoods Properties, Inc. Yes x☒ No ¨☐Highwoods Realty Limited Partnership Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Highwoods Properties, Inc. Yes x☒ No ¨☐Highwoods Realty Limited Partnership Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of 'large“large accelerated filer,' 'accelerated” “accelerated filer,' 'smaller” “smaller reporting company,'” and 'emerging“emerging growth company'company” in Rule 12b-2 of the Exchange Act.
Highwoods Properties, Inc.
Large accelerated filer x☒ Accelerated filer ¨☐ Non-accelerated filer ¨ (Do not check if a smaller reporting company)
☐Smaller reporting company ¨☐ Emerging growth company ¨☐
Highwoods Realty Limited Partnership
Large accelerated filer ¨☐ Accelerated filer ¨☐ Non-accelerated filer x (Do not check if a smaller reporting company)
☒Smaller reporting company ¨☐ Emerging growth company ¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Highwoods Properties, Inc.¨☐Highwoods Realty Limited Partnership¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Highwoods Properties, Inc. Yes ¨☐ No x☒Highwoods Realty Limited Partnership Yes ¨☐ No x☒
The Company had 103,248,940105,693,261 shares of Common Stock outstanding as of October 18, 2017.
EXPLANATORY NOTE
We refer to Highwoods Properties, Inc. as the “Company,” Highwoods Realty Limited Partnership as the “Operating Partnership,” the Company’s common stock as “Common Stock” or “Common Shares,” the Company’s preferred stock as “Preferred Stock” or “Preferred Shares,” the Operating Partnership’s common partnership interests as “Common Units” and the Operating Partnership’s preferred partnership interests as “Preferred Units.” References to “we” and “our” mean the Company and the Operating Partnership, collectively, unless the context indicates otherwise.
The Company conducts its activities through the Operating Partnership and is its sole general partner. The partnership agreement provides that the Operating Partnership will assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership. The partnership agreement further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership.
Except as otherwise noted, all property-level operational information presented herein includes in-service wholly owned properties and in-service properties owned by consolidated joint ventures (at 100%). Development projects are not considered in-service properties until such projects are completed and stabilized. Stabilization occurs at the beginning of the first quarter after the earlier of: (1) the projected stabilization date, or (2) the date on which a project's occupancy generally exceeds 93%.
Certain information contained herein is presented as of October 18, 2017,17, 2023, the latest practicable date for financial information prior to the filing of this Quarterly Report.
This report combines the Quarterly Reports on Form 10-Q for the period ended September 30, 20172023 of the Company and the Operating Partnership. We believe combining the quarterly reports into this single report results in the following benefits:
•combined reports better reflect how management and investors view the business as a single operating unit;
•combined reports enhance investors'investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;
•combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and
•combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
•Consolidated Financial Statements;
•Note 1211 to Consolidated Financial Statements - Earnings Per Share and Per Unit;
•Item 4 - Controls and Procedures; and
•Item 6 - Certifications of CEO and CFO Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 20172023
TABLE OF CONTENTS
| | | | | |
| Page |
| |
| Page |
| |
PART I - FINANCIAL INFORMATION | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
PART II - OTHER INFORMATION | |
| |
| |
| |
| |
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HIGHWOODS PROPERTIES, INC.
Consolidated Balance Sheets
(Unaudited and in thousands, except share and per share data)
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Assets: | | | |
Real estate assets, at cost: | | | |
Land | $ | 542,418 | | | $ | 548,720 | |
Buildings and tenant improvements | 5,970,163 | | | 5,909,754 | |
Development in-process | 6,203 | | | 46,735 | |
Land held for development | 227,817 | | | 231,218 | |
| 6,746,601 | | | 6,736,427 | |
Less-accumulated depreciation | (1,711,023) | | | (1,609,502) | |
Net real estate assets | 5,035,578 | | | 5,126,925 | |
Real estate and other assets, net, held for sale | 4,706 | | | — | |
Cash and cash equivalents | 16,901 | | | 21,357 | |
Restricted cash | 3,809 | | | 4,748 | |
Accounts receivable | 25,583 | | | 25,481 | |
Mortgages and notes receivable | 9,783 | | | 1,051 | |
Accrued straight-line rents receivable | 308,277 | | | 293,674 | |
Investments in and advances to unconsolidated affiliates | 314,475 | | | 269,221 | |
Deferred leasing costs, net of accumulated amortization of $173,926 and $163,751, respectively | 233,079 | | | 252,828 | |
Prepaid expenses and other assets, net of accumulated depreciation of $23,008 and $21,660, respectively | 72,177 | | | 68,091 | |
Total Assets | $ | 6,024,368 | | | $ | 6,063,376 | |
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity: | | | |
Mortgages and notes payable, net | $ | 3,212,185 | | | $ | 3,197,215 | |
Accounts payable, accrued expenses and other liabilities | 310,409 | | | 301,184 | |
| | | |
| | | |
Total Liabilities | 3,522,594 | | | 3,498,399 | |
Commitments and contingencies | | | |
Noncontrolling interests in the Operating Partnership | 44,452 | | | 65,977 | |
Equity: | | | |
Preferred Stock, $.01 par value, 50,000,000 authorized shares; | | | |
8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 28,811 and 28,821 shares issued and outstanding, respectively | 28,811 | | | 28,821 | |
Common Stock, $.01 par value, 200,000,000 authorized shares; | | | |
105,693,261 and 105,210,858 shares issued and outstanding, respectively | 1,057 | | | 1,052 | |
Additional paid-in capital | 3,107,593 | | | 3,081,330 | |
Distributions in excess of net income available for common stockholders | (683,171) | | | (633,227) | |
Accumulated other comprehensive loss | (1,434) | | | (1,211) | |
Total Stockholders’ Equity | 2,452,856 | | | 2,476,765 | |
Noncontrolling interests in consolidated affiliates | 4,466 | | | 22,235 | |
Total Equity | 2,457,322 | | | 2,499,000 | |
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity | $ | 6,024,368 | | | $ | 6,063,376 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Assets: | | | |
Real estate assets, at cost: | | | |
Land | $ | 488,013 |
| | $ | 474,375 |
|
Buildings and tenant improvements | 4,605,061 |
| | 4,313,373 |
|
Development in-process | 58,578 |
| | 279,602 |
|
Land held for development | 76,969 |
| | 77,355 |
|
| 5,228,621 |
| | 5,144,705 |
|
Less-accumulated depreciation | (1,196,642 | ) | | (1,134,103 | ) |
Net real estate assets | 4,031,979 |
| | 4,010,602 |
|
Cash and cash equivalents | 4,864 |
| | 49,490 |
|
Restricted cash | 47,761 |
| | 29,141 |
|
Accounts receivable, net of allowance of $504 and $624, respectively | 18,027 |
| | 17,372 |
|
Mortgages and notes receivable, net of allowance of $80 and $105, respectively | 6,789 |
| | 8,833 |
|
Accrued straight-line rents receivable, net of allowance of $324 and $692, respectively | 194,639 |
| | 172,829 |
|
Investments in and advances to unconsolidated affiliates | 23,523 |
| | 18,846 |
|
Deferred leasing costs, net of accumulated amortization of $145,814 and $140,081, respectively | 202,814 |
| | 213,500 |
|
Prepaid expenses and other assets, net of accumulated amortization of $22,341 and $19,904, respectively | 30,070 |
| | 40,437 |
|
Total Assets | $ | 4,560,466 |
| | $ | 4,561,050 |
|
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity: | | | |
Mortgages and notes payable, net | $ | 1,966,398 |
| | $ | 1,948,047 |
|
Accounts payable, accrued expenses and other liabilities | 227,575 |
| | 313,885 |
|
Total Liabilities | 2,193,973 |
| | 2,261,932 |
|
Commitments and contingencies |
| |
|
Noncontrolling interests in the Operating Partnership | 147,451 |
| | 144,802 |
|
Equity: | | | |
Preferred Stock, $.01 par value, 50,000,000 authorized shares; | | | |
8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 28,892 and 28,920 shares issued and outstanding, respectively | 28,892 |
| | 28,920 |
|
Common Stock, $.01 par value, 200,000,000 authorized shares; | | | |
103,248,940 and 101,665,554 shares issued and outstanding, respectively | 1,032 |
| | 1,017 |
|
Additional paid-in capital | 2,924,048 |
| | 2,850,881 |
|
Distributions in excess of net income available for common stockholders | (758,484 | ) | | (749,412 | ) |
Accumulated other comprehensive income | 5,910 |
| | 4,949 |
|
Total Stockholders’ Equity | 2,201,398 |
| | 2,136,355 |
|
Noncontrolling interests in consolidated affiliates | 17,644 |
| | 17,961 |
|
Total Equity | 2,219,042 |
| | 2,154,316 |
|
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity | $ | 4,560,466 |
| | $ | 4,561,050 |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Income
(Unaudited and in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Rental and other revenues | $ | 207,095 | | | $ | 206,997 | | | $ | 627,138 | | | $ | 617,216 | |
Operating expenses: | | | | | | | |
Rental property and other expenses | 67,193 | | | 66,334 | | | 199,231 | | | 190,125 | |
Depreciation and amortization | 74,765 | | | 73,057 | | | 220,416 | | | 212,466 | |
Impairments of real estate assets | — | | | 1,515 | | | — | | | 36,515 | |
General and administrative | 8,873 | | | 9,586 | | | 30,668 | | | 32,733 | |
Total operating expenses | 150,831 | | | 150,492 | | | 450,315 | | | 471,839 | |
Interest expense | 34,247 | | | 26,392 | | | 101,408 | | | 75,812 | |
Other income | 754 | | | 138 | | | 3,082 | | | 621 | |
| | | | | | | |
Gains on disposition of property | — | | | 9,402 | | | 19,818 | | | 63,546 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Gain on deconsolidation of affiliate | — | | | — | | | 11,778 | | | — | |
Equity in earnings of unconsolidated affiliates | 400 | | | 457 | | | 1,902 | | | 1,083 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income | 23,171 | | | 40,110 | | | 111,995 | | | 134,815 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | (453) | | | (881) | | | (2,386) | | | (3,049) | |
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | 5 | | | (357) | | | 488 | | | (880) | |
Dividends on Preferred Stock | (622) | | | (621) | | | (1,864) | | | (1,864) | |
| | | | | | | |
Net income available for common stockholders | $ | 22,101 | | | $ | 38,251 | | | $ | 108,233 | | | $ | 129,022 | |
Earnings per Common Share – basic: | | | | | | | |
| | | | | | | |
| | | | | | | |
Net income available for common stockholders | $ | 0.21 | | | $ | 0.36 | | | $ | 1.03 | | | $ | 1.23 | |
Weighted average Common Shares outstanding – basic | 105,671 | | | 105,184 | | | 105,473 | | | 105,094 | |
Earnings per Common Share – diluted: | | | | | | | |
| | | | | | | |
| | | | | | | |
Net income available for common stockholders | $ | 0.21 | | | $ | 0.36 | | | $ | 1.03 | | | $ | 1.23 | |
Weighted average Common Shares outstanding – diluted | 107,832 | | | 107,601 | | | 107,762 | | | 107,570 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Rental and other revenues | $ | 180,185 |
| | $ | 166,269 |
| | $ | 526,876 |
| | $ | 497,988 |
|
Operating expenses: | | | | | | | |
Rental property and other expenses | 61,234 |
| | 58,620 |
| | 177,484 |
| | 173,715 |
|
Depreciation and amortization | 56,973 |
| | 52,923 |
| | 168,934 |
| | 161,734 |
|
Impairments of real estate assets | 1,445 |
| | — |
| | 1,445 |
| | — |
|
General and administrative | 9,247 |
| | 9,863 |
| | 29,787 |
| | 29,327 |
|
Total operating expenses | 128,899 |
| | 121,406 |
| | 377,650 |
| | 364,776 |
|
Interest expense: | | | | | | | |
Contractual | 16,395 |
| | 17,722 |
| | 48,763 |
| | 56,111 |
|
Amortization of debt issuance costs | 796 |
| | 844 |
| | 2,445 |
| | 2,645 |
|
| 17,191 |
| | 18,566 |
| | 51,208 |
| | 58,756 |
|
Other income: | | | | | | | |
Interest and other income | 558 |
| | 833 |
| | 1,806 |
| | 1,884 |
|
Gains on debt extinguishment | — |
| | — |
| | 826 |
| | — |
|
| 558 |
| | 833 |
|
| 2,632 |
|
| 1,884 |
|
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates | 34,653 |
| | 27,130 |
| | 100,650 |
| | 76,340 |
|
Gains on disposition of property | 19,849 |
| | 3,902 |
| | 25,181 |
| | 14,160 |
|
Equity in earnings of unconsolidated affiliates | 5,047 |
| | 2,808 |
| | 6,757 |
| | 5,010 |
|
Income from continuing operations | 59,549 |
| | 33,840 |
| | 132,588 |
| | 95,510 |
|
Discontinued operations: | | | | | | | |
Income from discontinued operations | — |
| | — |
| | — |
| | 4,097 |
|
Net gains on disposition of discontinued operations | — |
| | — |
| | — |
| | 414,496 |
|
| — |
| | — |
| | — |
| | 418,593 |
|
Net income | 59,549 |
| | 33,840 |
| | 132,588 |
| | 514,103 |
|
Net (income) attributable to noncontrolling interests in the Operating Partnership | (1,571 | ) | | (926 | ) | | (3,502 | ) | | (14,876 | ) |
Net (income) attributable to noncontrolling interests in consolidated affiliates | (315 | ) | | (319 | ) | | (914 | ) | | (941 | ) |
Dividends on Preferred Stock | (623 | ) | | (624 | ) | | (1,869 | ) | | (1,877 | ) |
Net income available for common stockholders | $ | 57,040 |
| | $ | 31,971 |
|
| $ | 126,303 |
|
| $ | 496,409 |
|
Earnings per Common Share – basic: | | | | | | | |
Income from continuing operations available for common stockholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.23 |
| | $ | 0.92 |
|
Income from discontinued operations available for common stockholders | — |
| | — |
| | — |
| | 4.16 |
|
Net income available for common stockholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.23 |
| | $ | 5.08 |
|
Weighted average Common Shares outstanding – basic | 103,237 |
| | 98,973 |
| | 102,489 |
| | 97,669 |
|
Earnings per Common Share – diluted: | | | | | | | |
Income from continuing operations available for common stockholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.23 |
| | $ | 0.92 |
|
Income from discontinued operations available for common stockholders | — |
| | — |
| | — |
| | 4.16 |
|
Net income available for common stockholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.23 |
| | $ | 5.08 |
|
Weighted average Common Shares outstanding – diluted | 106,145 |
| | 101,939 |
| | 105,402 |
| | 100,645 |
|
Dividends declared per Common Share | $ | 0.440 |
| | $ | 0.425 |
| | $ | 1.320 |
| | $ | 1.275 |
|
Net income available for common stockholders: | | | | | | | |
Income from continuing operations available for common stockholders | $ | 57,040 |
| | $ | 31,971 |
| | $ | 126,303 |
| | $ | 90,081 |
|
Income from discontinued operations available for common stockholders | — |
| | — |
| | — |
| | 406,328 |
|
Net income available for common stockholders | $ | 57,040 |
| | $ | 31,971 |
| | $ | 126,303 |
| | $ | 496,409 |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Comprehensive Income
(Unaudited and in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Comprehensive income: | | | | | | | |
Net income | $ | 23,171 | | | $ | 40,110 | | | $ | 111,995 | | | $ | 134,815 | |
Other comprehensive loss: | | | | | | | |
| | | | | | | |
| | | | | | | |
Amortization of cash flow hedges | (74) | | | (75) | | | (223) | | | (164) | |
Total other comprehensive loss | (74) | | | (75) | | | (223) | | | (164) | |
Total comprehensive income | 23,097 | | | 40,035 | | | 111,772 | | | 134,651 | |
Less-comprehensive (income) attributable to noncontrolling interests | (448) | | | (1,238) | | | (1,898) | | | (3,929) | |
Comprehensive income attributable to common stockholders | $ | 22,649 | | | $ | 38,797 | | | $ | 109,874 | | | $ | 130,722 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Comprehensive income: | | | | | | | |
Net income | $ | 59,549 |
| | $ | 33,840 |
| | $ | 132,588 |
| | $ | 514,103 |
|
Other comprehensive income/(loss): | | | | | | | |
Unrealized gains/(losses) on cash flow hedges | (347 | ) | | 1,610 |
| | (31 | ) | | (7,785 | ) |
Amortization of cash flow hedges | 211 |
| | 758 |
| | 992 |
| | 2,336 |
|
Total other comprehensive income/(loss) | (136 | ) | | 2,368 |
| | 961 |
| | (5,449 | ) |
Total comprehensive income | 59,413 |
| | 36,208 |
| | 133,549 |
| | 508,654 |
|
Less-comprehensive (income) attributable to noncontrolling interests | (1,886 | ) | | (1,245 | ) | | (4,416 | ) | | (15,817 | ) |
Comprehensive income attributable to common stockholders | $ | 57,527 |
| | $ | 34,963 |
| | $ | 129,133 |
| | $ | 492,837 |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity
(Unaudited and in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| Number of Common Shares | | Common Stock | | Series A Cumulative Redeemable Preferred Shares | | Additional Paid-In Capital | | Accumulated Other Compre-hensive Loss | | Non-controlling Interests in Consolidated Affiliates | | Distributions in Excess of Net Income Available for Common Stockholders | | Total |
Balance as of June 30, 2023 | 105,472,213 | | | $ | 1,055 | | | $ | 28,811 | | | $ | 3,095,272 | | | $ | (1,360) | | | $ | 4,471 | | | $ | (652,436) | | | $ | 2,475,813 | |
Issuances of Common Stock, net of issuance costs and tax withholdings | 17,521 | | | 2 | | | — | | | 359 | | | — | | | — | | | — | | | 361 | |
Conversions of Common Units to Common Stock | 193,907 | | | | | | | 4,795 | | | | | | | | | 4,795 | |
Dividends on Common Stock ($0.50 per share) | | | — | | | — | | | — | | | — | | | — | | | (52,836) | | | (52,836) | |
Dividends on Preferred Stock ($21.5625 per share) | | | — | | | — | | | — | | | — | | | — | | | (622) | | | (622) | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | | | — | | | — | | | 6,334 | | | — | | | — | | | — | | | 6,334 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Issuances of restricted stock | 9,620 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Share-based compensation expense, net of forfeitures | — | | | — | | | — | | | 833 | | | — | | | — | | | — | | | 833 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | | | — | | | — | | | — | | | — | | | — | | | (453) | | | (453) | |
Net loss attributable to noncontrolling interests in consolidated affiliates | | | — | | | — | | | — | | | — | | | (5) | | | 5 | | | — | |
| | | | | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income | | | — | | | — | | | — | | | — | | | — | | | 23,171 | | | 23,171 | |
Other comprehensive loss | | | — | | | — | | | — | | | (74) | | | — | | | — | | | (74) | |
Total comprehensive income | | | | | | | | | | | | | | | 23,097 | |
Balance as of September 30, 2023 | 105,693,261 | | | $ | 1,057 | | | $ | 28,811 | | | $ | 3,107,593 | | | $ | (1,434) | | | $ | 4,466 | | | $ | (683,171) | | | $ | 2,457,322 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Common Shares | | Common Stock | | Series A Cumulative Redeemable Preferred Shares | | Additional Paid-In Capital | | Accumulated Other Compre-hensive Income | | Non-controlling Interests in Consolidated Affiliates | | Distributions in Excess of Net Income Available for Common Stockholders | | Total |
Balance at December 31, 2016 | 101,665,554 |
| | $ | 1,017 |
| | $ | 28,920 |
| | $ | 2,850,881 |
| | $ | 4,949 |
| | $ | 17,961 |
| | $ | (749,412 | ) | | $ | 2,154,316 |
|
Issuances of Common Stock, net of issuance costs and tax withholdings | 1,464,638 |
| | 15 |
| | — |
| | 70,292 |
| | — |
| | — |
| | — |
| | 70,307 |
|
Conversions of Common Units to Common Stock | 8,000 |
| | — |
| | — |
| | 408 |
| | — |
| | — |
| | — |
| | 408 |
|
Dividends on Common Stock |
|
| | — |
| | — |
| | — |
| | — |
| | — |
| | (135,375 | ) | | (135,375 | ) |
Dividends on Preferred Stock |
|
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,869 | ) | | (1,869 | ) |
Adjustment of noncontrolling interests in the Operating Partnership to fair value |
|
| | — |
| | — |
| | (3,297 | ) | | — |
| | — |
| | — |
| | (3,297 | ) |
Distributions to noncontrolling interests in consolidated affiliates |
|
| | — |
| | — |
| | — |
| | — |
| | (1,231 | ) | | — |
| | (1,231 | ) |
Issuances of restricted stock | 110,748 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Redemptions/repurchases of Preferred Stock | | | — |
| | (28 | ) | | — |
| | — |
| | — |
| | — |
| | (28 | ) |
Share-based compensation expense, net of forfeitures | — |
| | — |
| | — |
| | 5,764 |
| | — |
| | — |
| | — |
| | 5,764 |
|
Net (income) attributable to noncontrolling interests in the Operating Partnership |
|
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,502 | ) | | (3,502 | ) |
Net (income) attributable to noncontrolling interests in consolidated affiliates |
|
| | — |
| | — |
| | — |
| | — |
| | 914 |
| | (914 | ) | | — |
|
Comprehensive income: | | | | | | | | | | | | | | | |
Net income |
|
| | — |
| | — |
| | — |
| | — |
| | — |
| | 132,588 |
| | 132,588 |
|
Other comprehensive income |
|
| | — |
| | — |
| | — |
| | 961 |
| | — |
| | — |
| | 961 |
|
Total comprehensive income | | | | | | | | | | | | | | | 133,549 |
|
Balance at September 30, 2017 | 103,248,940 |
| | $ | 1,032 |
| | $ | 28,892 |
| | $ | 2,924,048 |
| | $ | 5,910 |
| | $ | 17,644 |
| | $ | (758,484 | ) | | $ | 2,219,042 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Number of Common Shares | | Common Stock | | Series A Cumulative Redeemable Preferred Shares | | Additional Paid-In Capital | | Accumulated Other Compre-hensive Loss | | Non-controlling Interests in Consolidated Affiliates | | Distributions in Excess of Net Income Available for Common Stockholders | | Total |
Balance at December 31, 2022 | 105,210,858 | | | $ | 1,052 | | | $ | 28,821 | | | $ | 3,081,330 | | | $ | (1,211) | | | $ | 22,235 | | | $ | (633,227) | | | $ | 2,499,000 | |
Issuances of Common Stock, net of issuance costs and tax withholdings | 10,010 | | | 2 | | | — | | | (204) | | | — | | | — | | | — | | | (202) | |
Conversions of Common Units to Common Stock | 193,907 | | | | | | | 4,795 | | | | | | | | | 4,795 | |
Dividends on Common Stock ($1.50 per share) | | | — | | | — | | | — | | | — | | | — | | | (158,177) | | | (158,177) | |
Dividends on Preferred Stock ($64.6875 per share) | | | — | | | — | | | — | | | — | | | — | | | (1,864) | | | (1,864) | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | | | — | | | — | | | 15,521 | | | — | | | — | | | — | | | 15,521 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Issuances of restricted stock | 282,453 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Redemptions/repurchases of Preferred Stock | | | — | | | (10) | | | — | | | — | | | — | | | — | | | (10) | |
Share-based compensation expense, net of forfeitures | (3,967) | | | 3 | | | — | | | 6,151 | | | — | | | — | | | — | | | 6,154 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | | | — | | | — | | | — | | | — | | | — | | | (2,386) | | | (2,386) | |
Net loss attributable to noncontrolling interests in consolidated affiliates | | | — | | | — | | | — | | | — | | | (488) | | | 488 | | | — | |
Deconsolidation of affiliate | | | — | | | — | | | — | | | — | | | (17,281) | | | — | | | (17,281) | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income | | | — | | | — | | | — | | | — | | | — | | | 111,995 | | | 111,995 | |
Other comprehensive loss | | | — | | | — | | | — | | | (223) | | | — | | | — | | | (223) | |
Total comprehensive income | | | | | | | | | | | | | | | 111,772 | |
Balance as of September 30, 2023 | 105,693,261 | | | $ | 1,057 | | | $ | 28,811 | | | $ | 3,107,593 | | | $ | (1,434) | | | $ | 4,466 | | | $ | (683,171) | | | $ | 2,457,322 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Common Shares | | Common Stock | | Series A Cumulative Redeemable Preferred Shares | | Additional Paid-In Capital | | Accumulated Other Compre-hensive Loss | | Non-controlling Interests in Consolidated Affiliates | | Distributions in Excess of Net Income Available for Common Stockholders | | Total |
Balance at December 31, 2015 | 96,091,932 |
| | $ | 961 |
| | $ | 29,050 |
| | $ | 2,598,242 |
| | $ | (3,811 | ) | | $ | 17,975 |
| | $ | (1,023,135 | ) | | $ | 1,619,282 |
|
Issuances of Common Stock, net of issuance costs and tax withholdings | 3,930,262 |
| | 39 |
| | — |
| | 187,175 |
| | — |
| | — |
| | — |
| | 187,214 |
|
Conversions of Common Units to Common Stock | 60,048 |
| | — |
| | — |
| | 3,006 |
| | — |
| | — |
| | — |
| | 3,006 |
|
Dividends on Common Stock |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (124,228 | ) | | (124,228 | ) |
Dividends on Preferred Stock |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,877 | ) | | (1,877 | ) |
Adjustment of noncontrolling interests in the Operating Partnership to fair value |
| | — |
| | — |
| | (13,390 | ) | | — |
| | — |
| | — |
| | (13,390 | ) |
Distributions to noncontrolling interests in consolidated affiliates |
| | — |
| | — |
| | — |
| | — |
| | (966 | ) | | — |
| | (966 | ) |
Issuances of restricted stock | 130,752 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Redemptions/repurchases of Preferred Stock |
| | — |
| | (130 | ) | | — |
| | — |
| | — |
| | — |
| | (130 | ) |
Share-based compensation expense, net of forfeitures | (8,888 | ) | | 2 |
| | — |
| | 5,410 |
| | — |
| | — |
| | — |
| | 5,412 |
|
Net (income) attributable to noncontrolling interests in the Operating Partnership |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (14,876 | ) | | (14,876 | ) |
Net (income) attributable to noncontrolling interests in consolidated affiliates |
| | — |
| | — |
| | — |
| | — |
| | 941 |
| | (941 | ) | | — |
|
Comprehensive income: | | | | | | | | | | | | | | | |
Net income |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 514,103 |
| | 514,103 |
|
Other comprehensive loss |
| | — |
| | — |
| | — |
| | (5,449 | ) | | — |
| | — |
| | (5,449 | ) |
Total comprehensive income | | | | | | | | | | | | | | | 508,654 |
|
Balance at September 30, 2016 | 100,204,106 |
| | $ | 1,002 |
| | $ | 28,920 |
| | $ | 2,780,443 |
| | $ | (9,260 | ) | | $ | 17,950 |
| | $ | (650,954 | ) | | $ | 2,168,101 |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity - Continued
(Unaudited and in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| Number of Common Shares | | Common Stock | | Series A Cumulative Redeemable Preferred Shares | | Additional Paid-In Capital | | Accumulated Other Compre-hensive Loss | | Non-controlling Interests in Consolidated Affiliates | | Distributions in Excess of Net Income Available for Common Stockholders | | Total |
Balance as of June 30, 2022 | 105,184,854 | | | $ | 1,052 | | | $ | 28,821 | | | $ | 3,065,208 | | | $ | (1,062) | | | $ | 21,528 | | | $ | (593,846) | | | $ | 2,521,701 | |
Issuances of Common Stock, net of issuance costs and tax withholdings | 13,583 | | | — | | | — | | | 362 | | | — | | | — | | | — | | | 362 | |
| | | | | | | | | | | | | | | |
Dividends on Common Stock ($0.50 per share) | | | — | | | — | | | — | | | — | | | — | | | (52,586) | | | (52,586) | |
Dividends on Preferred Stock ($21.5625 per share) | | | — | | | — | | | — | | | — | | | — | | | (621) | | | (621) | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | | | — | | | — | | | 16,952 | | | — | | | — | | | — | | | 16,952 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Share-based compensation expense, net of forfeitures | (779) | | | — | | | — | | | 707 | | | — | | | — | | | — | | | 707 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | | | — | | | — | | | — | | | — | | | — | | | (881) | | | (881) | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | | | — | | | — | | | — | | | — | | | 357 | | | (357) | | | — | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income | | | — | | | — | | | — | | | — | | | — | | | 40,110 | | | 40,110 | |
Other comprehensive loss | | | — | | | — | | | — | | | (75) | | | — | | | — | | | (75) | |
Total comprehensive income | | | | | | | | | | | | | | | 40,035 | |
Balance as of September 30, 2022 | 105,197,658 | | | $ | 1,052 | | | $ | 28,821 | | | $ | 3,083,229 | | | $ | (1,137) | | | $ | 21,885 | | | $ | (608,181) | | | $ | 2,525,669 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Number of Common Shares | | Common Stock | | Series A Cumulative Redeemable Preferred Shares | | Additional Paid-In Capital | | Accumulated Other Compre-hensive Loss | | Non-controlling Interests in Consolidated Affiliates | | Distributions in Excess of Net Income Available for Common Stockholders | | Total |
Balance at December 31, 2021 | 104,892,780 | | | $ | 1,049 | | | $ | 28,821 | | | $ | 3,027,861 | | | $ | (973) | | | $ | 22,416 | | | $ | (579,616) | | | $ | 2,499,558 | |
Issuances of Common Stock, net of issuance costs and tax withholdings | 92,941 | | | 1 | | | — | | | 4,796 | | | — | | | — | | | — | | | 4,797 | |
Conversions of Common Units to Common Stock | 30,909 | | | | | | | 1,251 | | | | | | | | | 1,251 | |
Dividends on Common Stock ($1.50 per share) | | | — | | | — | | | — | | | — | | | — | | | (157,587) | | | (157,587) | |
Dividends on Preferred Stock ($64.6875 per share) | | | — | | | — | | | — | | | — | | | — | | | (1,864) | | | (1,864) | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | | | — | | | — | | | 42,480 | | | — | | | — | | | — | | | 42,480 | |
Distributions to noncontrolling interests in consolidated affiliates | | | — | | | — | | | — | | | — | | | (1,411) | | | — | | | (1,411) | |
| | | | | | | | | | | | | | | |
Issuances of restricted stock | 181,807 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Share-based compensation expense, net of forfeitures | (779) | | | 2 | | | — | | | 6,841 | | | — | | | — | | | — | | | 6,843 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | | | — | | | — | | | — | | | — | | | — | | | (3,049) | | | (3,049) | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | | | — | | | — | | | — | | | — | | | 880 | | | (880) | | | — | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income | | | — | | | — | | | — | | | — | | | — | | | 134,815 | | | 134,815 | |
Other comprehensive loss | | | — | | | — | | | — | | | (164) | | | — | | | — | | | (164) | |
Total comprehensive income | | | | | | | | | | | | | | | 134,651 | |
Balance as of September 30, 2022 | 105,197,658 | | | $ | 1,052 | | | $ | 28,821 | | | $ | 3,083,229 | | | $ | (1,137) | | | $ | 21,885 | | | $ | (608,181) | | | $ | 2,525,669 | |
See accompanying notes to consolidated financial statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Operating activities: | | | |
Net income | $ | 111,995 | | | $ | 134,815 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 220,416 | | | 212,466 | |
Amortization of lease incentives and acquisition-related intangible assets and liabilities | 712 | | | (342) | |
Share-based compensation expense | 6,154 | | | 6,843 | |
| | | |
Net credit losses on operating lease receivables | 1,850 | | | 3,167 | |
| | | |
Accrued interest on mortgages and notes receivable | (750) | | | (67) | |
Amortization of debt issuance costs | 3,645 | | | 3,096 | |
Amortization of cash flow hedges | (223) | | | (164) | |
Amortization of mortgages and notes payable fair value adjustments | (257) | | | (60) | |
Impairments of real estate assets | — | | | 36,515 | |
| | | |
| | | |
Net gains on disposition of property | (19,818) | | | (63,546) | |
Gain on deconsolidation of controlling interest in affiliate | (11,778) | | | — | |
| | | |
| | | |
| | | |
Equity in earnings of unconsolidated affiliates | (1,902) | | | (1,083) | |
| | | |
Distributions of earnings from unconsolidated affiliates | 1,153 | | | 606 | |
| | | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 1,182 | | | (11,454) | |
Prepaid expenses and other assets | (4,376) | | | (2,150) | |
Accrued straight-line rents receivable | (20,196) | | | (20,558) | |
Accounts payable, accrued expenses and other liabilities | (3,636) | | | 21,795 | |
Net cash provided by operating activities | 284,171 | | | 319,879 | |
Investing activities: | | | |
Investments in acquired real estate and related intangible assets, net of cash acquired | (18,544) | | | (224,934) | |
Investments in development in-process | (26,179) | | | (26,220) | |
Investments in tenant improvements and deferred leasing costs | (68,625) | | | (90,910) | |
Investments in building improvements | (55,155) | | | (45,289) | |
| | | |
Net proceeds from disposition of real estate assets | 51,538 | | | 130,038 | |
| | | |
| | | |
Distributions of capital from unconsolidated affiliates | 3,864 | | | — | |
Investments in mortgages and notes receivable | (9,763) | | | (24) | |
Repayments of mortgages and notes receivable | 200 | | | 215 | |
Investments in and advances to unconsolidated affiliates | (100,052) | | | (81,693) | |
Repayments of preferred equity from unconsolidated affiliates | 80,000 | | | — | |
| | | |
Changes in earnest money deposits | 15,500 | | | (3,000) | |
Changes in other investing activities | (3,751) | | | 224 | |
Net cash used in investing activities | (130,967) | | | (341,593) | |
Financing activities: | | | |
Dividends on Common Stock | (158,177) | | | (157,587) | |
| | | |
Redemptions/repurchases of Preferred Stock | (10) | | | — | |
Redemptions of Common Units | (163) | | | (3,101) | |
Dividends on Preferred Stock | (1,864) | | | (1,864) | |
Distributions to noncontrolling interests in the Operating Partnership | (3,432) | | | (3,687) | |
| | | |
Distributions to noncontrolling interests in consolidated affiliates | — | | | (1,411) | |
Proceeds from the issuance of Common Stock | 1,349 | | | 7,200 | |
Costs paid for the issuance of Common Stock | (226) | | | (247) | |
Repurchase of shares related to tax withholdings | (1,325) | | | (2,156) | |
Borrowings on revolving credit facility | 219,000 | | | 275,000 | |
Repayments of revolving credit facility | (400,000) | | | (235,000) | |
Borrowings on mortgages and notes payable | 200,000 | | | 350,000 | |
Repayments of mortgages and notes payable | (5,018) | | | (204,807) | |
| | | |
| | | |
| | | |
Payments for debt issuance costs and other financing activities | (2,347) | | | (2,731) | |
Net cash provided by/(used in) financing activities | (152,213) | | | 19,609 | |
Net increase/(decrease) in cash and cash equivalents and restricted cash | $ | 991 | | | $ | (2,105) | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Operating activities: | | | |
Net income | $ | 132,588 |
| | $ | 514,103 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 168,934 |
| | 161,734 |
|
Amortization of lease incentives and acquisition-related intangible assets and liabilities | (666 | ) | | (1,599 | ) |
Share-based compensation expense | 5,764 |
| | 5,412 |
|
Allowance for losses on accounts and accrued straight-line rents receivable | 435 |
| | 1,846 |
|
Accrued interest on mortgages and notes receivable | (391 | ) | | (364 | ) |
Amortization of debt issuance costs | 2,445 |
| | 2,645 |
|
Amortization of cash flow hedges | 992 |
| | 2,336 |
|
Amortization of mortgages and notes payable fair value adjustments | 422 |
| | (175 | ) |
Impairments of real estate assets | 1,445 |
| | — |
|
Gains on debt extinguishment | (826 | ) | | — |
|
Net gains on disposition of property | (25,181 | ) | | (428,656 | ) |
Equity in earnings of unconsolidated affiliates | (6,757 | ) | | (5,010 | ) |
Distributions of earnings from unconsolidated affiliates | 4,815 |
| | 3,936 |
|
Settlement of cash flow hedges | 7,322 |
| | — |
|
Changes in operating assets and liabilities: | | | |
Accounts receivable | 916 |
| | 4,798 |
|
Prepaid expenses and other assets | 2,735 |
| | (2,243 | ) |
Accrued straight-line rents receivable | (24,473 | ) | | (18,931 | ) |
Accounts payable, accrued expenses and other liabilities | (308 | ) | | (7,447 | ) |
Net cash provided by operating activities | 270,211 |
| | 232,385 |
|
Investing activities: | | | |
Investments in acquired real estate and related intangible assets, net of cash acquired | — |
| | (110,249 | ) |
Investments in development in-process | (121,367 | ) | | (122,839 | ) |
Investments in tenant improvements and deferred leasing costs | (78,691 | ) | | (63,715 | ) |
Investments in building improvements | (41,862 | ) | | (51,714 | ) |
Net proceeds from disposition of real estate assets | 85,538 |
| | 680,994 |
|
Distributions of capital from unconsolidated affiliates | 11,670 |
| | 2,639 |
|
Investments in mortgages and notes receivable | — |
| | (7,934 | ) |
Repayments of mortgages and notes receivable | 2,435 |
| | 869 |
|
Investments in and advances to unconsolidated affiliates | (10,063 | ) | | (105 | ) |
Repayments from unconsolidated affiliates | — |
| | 448 |
|
Changes in restricted cash and other investing activities | (24,225 | ) | | (23,310 | ) |
Net cash provided by/(used in) investing activities | (176,565 | ) | | 305,084 |
|
Financing activities: | | | |
Dividends on Common Stock | (135,375 | ) | | (124,228 | ) |
Special dividend on Common Stock | (81,205 | ) | | — |
|
Redemptions/repurchases of Preferred Stock | (28 | ) | | (130 | ) |
Dividends on Preferred Stock | (1,869 | ) | | (1,877 | ) |
Distributions to noncontrolling interests in the Operating Partnership | (3,742 | ) | | (3,684 | ) |
Special distribution to noncontrolling interests in the Operating Partnership | (2,271 | ) | | — |
|
Distributions to noncontrolling interests in consolidated affiliates | (1,231 | ) | | (966 | ) |
Proceeds from the issuance of Common Stock | 75,517 |
| | 194,518 |
|
Costs paid for the issuance of Common Stock | (1,244 | ) | | (2,888 | ) |
Repurchase of shares related to tax withholdings | (3,966 | ) | | (4,416 | ) |
Borrowings on revolving credit facility | 492,300 |
| | 257,800 |
|
Repayments of revolving credit facility | (420,300 | ) | | (528,800 | ) |
Borrowings on mortgages and notes payable | 456,001 |
| | 75,000 |
|
Repayments of mortgages and notes payable | (507,114 | ) | | (395,455 | ) |
Payments of debt extinguishment costs | (57 | ) | | — |
|
Changes in debt issuance costs and other financing activities | (3,688 | ) | | (992 | ) |
Net cash used in financing activities | (138,272 | ) | | (536,118 | ) |
Net increase/(decrease) in cash and cash equivalents | $ | (44,626 | ) | | $ | 1,351 |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows – Continued
(Unaudited and in thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Net increase/(decrease) in cash and cash equivalents and restricted cash | $ | 991 | | | $ | (2,105) | |
Cash from deconsolidation of controlling interest in affiliate | (6,386) | | | — | |
Cash and cash equivalents and restricted cash at beginning of the period | 26,105 | | | 31,198 | |
Cash and cash equivalents and restricted cash at end of the period | $ | 20,710 | | | $ | 29,093 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Net increase/(decrease) in cash and cash equivalents | $ | (44,626 | ) | | $ | 1,351 |
|
Cash and cash equivalents at beginning of the period | 49,490 |
| | 5,036 |
|
Cash and cash equivalents at end of the period | $ | 4,864 |
| | $ | 6,387 |
|
Reconciliation of cash and cash equivalents and restricted cash:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash and cash equivalents at end of the period | $ | 16,901 | | | $ | 23,055 | |
Restricted cash at end of the period | 3,809 | | | 6,038 | |
Cash and cash equivalents and restricted cash at end of the period | $ | 20,710 | | | $ | 29,093 | |
Supplemental disclosure of cash flow information:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash paid for interest, net of amounts capitalized | $ | 105,342 | | | $ | 82,908 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash paid for interest, net of amounts capitalized | $ | 50,025 |
| | $ | 58,138 |
|
Supplemental disclosure of non-cash investing and financing activities:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| | | |
Conversions of Common Units to Common Stock | 4,795 | | | 1,251 | |
Changes in accrued capital expenditures (1) | 17,275 | | | (10,180) | |
Write-off of fully depreciated real estate assets | 54,489 | | | 42,817 | |
Write-off of fully amortized leasing costs | 25,605 | | | 22,739 | |
Write-off of fully amortized debt issuance costs | — | | | 1,216 | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | (15,521) | | | (42,480) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Unrealized losses on cash flow hedges | $ | (31 | ) | | $ | (7,785 | ) |
Conversions of Common Units to Common Stock | 408 |
| | 3,006 |
|
Changes in accrued capital expenditures | (6,327 | ) | | 25,037 |
|
Write-off of fully depreciated real estate assets | 41,860 |
| | 28,783 |
|
Write-off of fully amortized leasing costs | 28,343 |
| | 16,075 |
|
Write-off of fully amortized debt issuance costs | 4,324 |
| | 916 |
|
Adjustment of noncontrolling interests in the Operating Partnership to fair value | 3,297 |
| | 13,390 |
|
__________
(1)Accrued capital expenditures included in accounts payable, accrued expenses and other liabilities as of September 30, 2023 and 2022 were $70.7 million and $44.4 million, respectively.
See accompanying notes to consolidated financial statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Unaudited and in thousands, except unit and per unit data)
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Assets: | | | |
Real estate assets, at cost: | | | |
Land | $ | 542,418 | | | $ | 548,720 | |
Buildings and tenant improvements | 5,970,163 | | | 5,909,754 | |
Development in-process | 6,203 | | | 46,735 | |
Land held for development | 227,817 | | | 231,218 | |
| 6,746,601 | | | 6,736,427 | |
Less-accumulated depreciation | (1,711,023) | | | (1,609,502) | |
Net real estate assets | 5,035,578 | | | 5,126,925 | |
Real estate and other assets, net, held for sale | 4,706 | | | — | |
Cash and cash equivalents | 16,901 | | | 21,357 | |
Restricted cash | 3,809 | | | 4,748 | |
Accounts receivable | 25,583 | | | 25,481 | |
Mortgages and notes receivable | 9,783 | | | 1,051 | |
Accrued straight-line rents receivable | 308,277 | | | 293,674 | |
Investments in and advances to unconsolidated affiliates | 314,475 | | | 269,221 | |
Deferred leasing costs, net of accumulated amortization of $173,926 and $163,751, respectively | 233,079 | | | 252,828 | |
Prepaid expenses and other assets, net of accumulated depreciation of $23,008 and $21,660, respectively | 72,177 | | | 68,091 | |
Total Assets | $ | 6,024,368 | | | $ | 6,063,376 | |
Liabilities, Redeemable Operating Partnership Units and Capital: | | | |
Mortgages and notes payable, net | $ | 3,212,185 | | | $ | 3,197,215 | |
Accounts payable, accrued expenses and other liabilities | 310,409 | | | 301,184 | |
| | | |
| | | |
Total Liabilities | 3,522,594 | | | 3,498,399 | |
Commitments and contingencies | | | |
Redeemable Operating Partnership Units: | | | |
Common Units, 2,156,808 and 2,358,009 outstanding, respectively | 44,452 | | | 65,977 | |
Series A Preferred Units (liquidation preference $1,000 per unit), 28,811 and 28,821 units issued and outstanding, respectively | 28,811 | | | 28,821 | |
Total Redeemable Operating Partnership Units | 73,263 | | | 94,798 | |
Capital: | | | |
Common Units: | | | |
General partner Common Units, 1,074,413 and 1,071,601 outstanding, respectively | 24,255 | | | 24,492 | |
Limited partner Common Units, 104,210,039 and 103,730,448 outstanding, respectively | 2,401,224 | | | 2,424,663 | |
Accumulated other comprehensive loss | (1,434) | | | (1,211) | |
Noncontrolling interests in consolidated affiliates | 4,466 | | | 22,235 | |
Total Capital | 2,428,511 | | | 2,470,179 | |
Total Liabilities, Redeemable Operating Partnership Units and Capital | $ | 6,024,368 | | | $ | 6,063,376 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Assets: | | | |
Real estate assets, at cost: | | | |
Land | $ | 488,013 |
| | $ | 474,375 |
|
Buildings and tenant improvements | 4,605,061 |
| | 4,313,373 |
|
Development in-process | 58,578 |
| | 279,602 |
|
Land held for development | 76,969 |
| | 77,355 |
|
| 5,228,621 |
| | 5,144,705 |
|
Less-accumulated depreciation | (1,196,642 | ) | | (1,134,103 | ) |
Net real estate assets | 4,031,979 |
| | 4,010,602 |
|
Cash and cash equivalents | 4,864 |
| | 49,490 |
|
Restricted cash | 47,761 |
| | 29,141 |
|
Accounts receivable, net of allowance of $504 and $624, respectively | 18,027 |
| | 17,372 |
|
Mortgages and notes receivable, net of allowance of $80 and $105, respectively | 6,789 |
| | 8,833 |
|
Accrued straight-line rents receivable, net of allowance of $324 and $692, respectively | 194,639 |
| | 172,829 |
|
Investments in and advances to unconsolidated affiliates | 23,523 |
| | 18,846 |
|
Deferred leasing costs, net of accumulated amortization of $145,814 and $140,081, respectively | 202,814 |
| | 213,500 |
|
Prepaid expenses and other assets, net of accumulated amortization of $22,341 and $19,904, respectively | 30,070 |
| | 40,437 |
|
Total Assets | $ | 4,560,466 |
| | $ | 4,561,050 |
|
Liabilities, Redeemable Operating Partnership Units and Capital: | | | |
Mortgages and notes payable, net | $ | 1,966,398 |
| | $ | 1,948,047 |
|
Accounts payable, accrued expenses and other liabilities | 227,575 |
| | 313,885 |
|
Total Liabilities | 2,193,973 |
| | 2,261,932 |
|
Commitments and contingencies |
| |
|
Redeemable Operating Partnership Units: | | | |
Common Units, 2,830,704 and 2,838,704 outstanding, respectively | 147,451 |
| | 144,802 |
|
Series A Preferred Units (liquidation preference $1,000 per unit), 28,892 and 28,920 units issued and outstanding, respectively | 28,892 |
| | 28,920 |
|
Total Redeemable Operating Partnership Units | 176,343 |
| | 173,722 |
|
Capital: | | | |
Common Units: | | | |
General partner Common Units, 1,056,708 and 1,040,954 outstanding, respectively | 21,665 |
| | 21,023 |
|
Limited partner Common Units, 101,783,423 and 100,215,791 outstanding, respectively | 2,144,931 |
| | 2,081,463 |
|
Accumulated other comprehensive income | 5,910 |
| | 4,949 |
|
Noncontrolling interests in consolidated affiliates | 17,644 |
| | 17,961 |
|
Total Capital | 2,190,150 |
| | 2,125,396 |
|
Total Liabilities, Redeemable Operating Partnership Units and Capital | $ | 4,560,466 |
| | $ | 4,561,050 |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
(Unaudited and in thousands, except per unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Rental and other revenues | $ | 207,095 | | | $ | 206,997 | | | $ | 627,138 | | | $ | 617,216 | |
Operating expenses: | | | | | | | |
Rental property and other expenses | 67,193 | | | 66,334 | | | 199,231 | | | 190,125 | |
Depreciation and amortization | 74,765 | | | 73,057 | | | 220,416 | | | 212,466 | |
Impairments of real estate assets | — | | | 1,515 | | | — | | | 36,515 | |
General and administrative | 8,873 | | | 9,586 | | | 30,668 | | | 32,733 | |
Total operating expenses | 150,831 | | | 150,492 | | | 450,315 | | | 471,839 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest expense | 34,247 | | | 26,392 | | | 101,408 | | | 75,812 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other income | 754 | | | 138 | | | 3,082 | | | 621 | |
| | | | | | | |
Gains on disposition of property | — | | | 9,402 | | | 19,818 | | | 63,546 | |
Gain on deconsolidation of affiliate | — | | | — | | | 11,778 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Equity in earnings of unconsolidated affiliates | 400 | | | 457 | | | 1,902 | | | 1,083 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income | 23,171 | | | 40,110 | | | 111,995 | | | 134,815 | |
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | 5 | | | (357) | | | 488 | | | (880) | |
Distributions on Preferred Units | (622) | | | (621) | | | (1,864) | | | (1,864) | |
| | | | | | | |
Net income available for common unitholders | $ | 22,554 | | | $ | 39,132 | | | $ | 110,619 | | | $ | 132,071 | |
Earnings per Common Unit – basic: | | | | | | | |
| | | | | | | |
| | | | | | | |
Net income available for common unitholders | $ | 0.21 | | | $ | 0.37 | | | $ | 1.03 | | | $ | 1.23 | |
Weighted average Common Units outstanding – basic | 107,423 | | | 107,192 | | | 107,353 | | | 107,154 | |
Earnings per Common Unit – diluted: | | | | | | | |
| | | | | | | |
| | | | | | | |
Net income available for common unitholders | $ | 0.21 | | | $ | 0.37 | | | $ | 1.03 | | | $ | 1.23 | |
Weighted average Common Units outstanding – diluted | 107,423 | | | 107,192 | | | 107,353 | | | 107,161 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Rental and other revenues | $ | 180,185 |
| | $ | 166,269 |
| | $ | 526,876 |
| | $ | 497,988 |
|
Operating expenses: | | | | | | | |
Rental property and other expenses | 61,234 |
| | 58,620 |
| | 177,484 |
| | 173,715 |
|
Depreciation and amortization | 56,973 |
| | 52,923 |
| | 168,934 |
| | 161,734 |
|
Impairments of real estate assets | 1,445 |
| | — |
| | 1,445 |
| | — |
|
General and administrative | 9,247 |
| | 9,863 |
| | 29,787 |
| | 29,327 |
|
Total operating expenses | 128,899 |
| | 121,406 |
| | 377,650 |
| | 364,776 |
|
Interest expense: | | | | | | | |
Contractual | 16,395 |
| | 17,722 |
| | 48,763 |
| | 56,111 |
|
Amortization of debt issuance costs | 796 |
| | 844 |
| | 2,445 |
| | 2,645 |
|
| 17,191 |
| | 18,566 |
| | 51,208 |
| | 58,756 |
|
Other income: | | | | | | | |
Interest and other income | 558 |
| | 833 |
| | 1,806 |
| | 1,884 |
|
Gains on debt extinguishment | — |
| | — |
| | 826 |
| | — |
|
| 558 |
| | 833 |
| | 2,632 |
| | 1,884 |
|
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates | 34,653 |
| | 27,130 |
| | 100,650 |
| | 76,340 |
|
Gains on disposition of property | 19,849 |
| | 3,902 |
| | 25,181 |
| | 14,160 |
|
Equity in earnings of unconsolidated affiliates | 5,047 |
| | 2,808 |
| | 6,757 |
| | 5,010 |
|
Income from continuing operations | 59,549 |
| | 33,840 |
| | 132,588 |
| | 95,510 |
|
Discontinued operations: | | | | | | | |
Income from discontinued operations | — |
| | — |
| | — |
| | 4,097 |
|
Net gains on disposition of discontinued operations | — |
| | — |
| | — |
| | 414,496 |
|
| — |
| | — |
| | — |
| | 418,593 |
|
Net income | 59,549 |
| | 33,840 |
| | 132,588 |
| | 514,103 |
|
Net (income) attributable to noncontrolling interests in consolidated affiliates | (315 | ) | | (319 | ) | | (914 | ) | | (941 | ) |
Distributions on Preferred Units | (623 | ) | | (624 | ) | | (1,869 | ) | | (1,877 | ) |
Net income available for common unitholders | $ | 58,611 |
| | $ | 32,897 |
| | $ | 129,805 |
| | $ | 511,285 |
|
Earnings per Common Unit – basic: | | | | | | | |
Income from continuing operations available for common unitholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.24 |
| | $ | 0.93 |
|
Income from discontinued operations available for common unitholders | — |
| | — |
| | — |
| | 4.18 |
|
Net income available for common unitholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.24 |
| | $ | 5.11 |
|
Weighted average Common Units outstanding – basic | 105,660 |
| | 101,422 |
| | 104,914 |
| | 100,142 |
|
Earnings per Common Unit – diluted: | | | | | | | |
Income from continuing operations available for common unitholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.24 |
| | $ | 0.92 |
|
Income from discontinued operations available for common unitholders | — |
| | — |
| | — |
| | 4.18 |
|
Net income available for common unitholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.24 |
| | $ | 5.10 |
|
Weighted average Common Units outstanding – diluted | 105,736 |
| | 101,530 |
| | 104,993 |
| | 100,236 |
|
Distributions declared per Common Unit | $ | 0.440 |
| | $ | 0.425 |
| | $ | 1.320 |
| | $ | 1.275 |
|
Net income available for common unitholders: | | | | | | | |
Income from continuing operations available for common unitholders | $ | 58,611 |
| | $ | 32,897 |
| | $ | 129,805 |
| | $ | 92,692 |
|
Income from discontinued operations available for common unitholders | — |
| | — |
| | — |
| | 418,593 |
|
Net income available for common unitholders | $ | 58,611 |
| | $ | 32,897 |
| | $ | 129,805 |
| | $ | 511,285 |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Comprehensive Income
(Unaudited and in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Comprehensive income: | | | | | | | |
Net income | $ | 23,171 | | | $ | 40,110 | | | $ | 111,995 | | | $ | 134,815 | |
Other comprehensive loss: | | | | | | | |
| | | | | | | |
| | | | | | | |
Amortization of cash flow hedges | (74) | | | (75) | | | (223) | | | (164) | |
Total other comprehensive loss | (74) | | | (75) | | | (223) | | | (164) | |
Total comprehensive income | 23,097 | | | 40,035 | | | 111,772 | | | 134,651 | |
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | 5 | | | (357) | | | 488 | | | (880) | |
Comprehensive income attributable to common unitholders | $ | 23,102 | | | $ | 39,678 | | | $ | 112,260 | | | $ | 133,771 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Comprehensive income: | | | | | | | |
Net income | $ | 59,549 |
| | $ | 33,840 |
| | $ | 132,588 |
| | $ | 514,103 |
|
Other comprehensive income/(loss): | | | | | | | |
Unrealized gains/(losses) on cash flow hedges | (347 | ) | | 1,610 |
| | (31 | ) | | (7,785 | ) |
Amortization of cash flow hedges | 211 |
| | 758 |
| | 992 |
| | 2,336 |
|
Total other comprehensive income/(loss) | (136 | ) | | 2,368 |
| | 961 |
| | (5,449 | ) |
Total comprehensive income | 59,413 |
| | 36,208 |
| | 133,549 |
| | 508,654 |
|
Less-comprehensive (income) attributable to noncontrolling interests | (315 | ) | | (319 | ) | | (914 | ) | | (941 | ) |
Comprehensive income attributable to common unitholders | $ | 59,098 |
|
| $ | 35,889 |
| | $ | 132,635 |
| | $ | 507,713 |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Capital
(Unaudited and in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| General Partners’ Capital | | Limited Partners’ Capital | |
Balance as of June 30, 2023 | $ | 24,439 | | | $ | 2,419,452 | | | $ | (1,360) | | | $ | 4,471 | | | $ | 2,447,002 | |
Issuances of Common Units, net of issuance costs and tax withholdings | 4 | | | 357 | | | — | | | — | | | 361 | |
| | | | | | | | | |
Distributions on Common Units ($0.50 per unit) | (537) | | | (53,172) | | | — | | | — | | | (53,709) | |
Distributions on Preferred Units ($21.5625 per unit) | (7) | | | (615) | | | — | | | — | | | (622) | |
Share-based compensation expense, net of forfeitures | 9 | | | 824 | | | — | | | — | | | 833 | |
| | | | | | | | | |
| | | | | | | | | |
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | 115 | | | 11,434 | | | — | | | — | | | 11,549 | |
Net loss attributable to noncontrolling interests in consolidated affiliates | — | | | 5 | | | — | | | (5) | | | — | |
| | | | | | | | | |
Comprehensive income: | | | | | | | | | |
Net income | 232 | | | 22,939 | | | — | | | — | | | 23,171 | |
Other comprehensive loss | — | | | — | | | (74) | | | — | | | (74) | |
Total comprehensive income | | | | | | | | | 23,097 | |
Balance as of September 30, 2023 | $ | 24,255 | | | $ | 2,401,224 | | | $ | (1,434) | | | $ | 4,466 | | | $ | 2,428,511 | |
|
| | | | | | | | | | | | | | | | | | | |
| Common Units | | Accumulated Other Comprehensive Income | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| General Partners’ Capital | | Limited Partners’ Capital | |
Balance at December 31, 2016 | $ | 21,023 |
| | $ | 2,081,463 |
| | $ | 4,949 |
| | $ | 17,961 |
| | $ | 2,125,396 |
|
Issuances of Common Units, net of issuance costs and tax withholdings | 703 |
| | 69,604 |
| | — |
| | — |
| | 70,307 |
|
Distributions on Common Units | (1,386 | ) | | (137,191 | ) | | — |
| | — |
| | (138,577 | ) |
Distributions on Preferred Units | (19 | ) | | (1,850 | ) | | — |
| | — |
| | (1,869 | ) |
Share-based compensation expense, net of forfeitures | 58 |
| | 5,706 |
| | — |
| | — |
| | 5,764 |
|
Distributions to noncontrolling interests in consolidated affiliates | — |
| | — |
| | — |
| | (1,231 | ) | | (1,231 | ) |
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | (31 | ) | | (3,158 | ) | | — |
| | — |
| | (3,189 | ) |
Net (income) attributable to noncontrolling interests in consolidated affiliates | (9 | ) | | (905 | ) | | — |
| | 914 |
| | — |
|
Comprehensive income: | | | | | | | | | |
Net income | 1,326 |
| | 131,262 |
| | — |
| | — |
| | 132,588 |
|
Other comprehensive income | — |
| | — |
| | 961 |
| | — |
| | 961 |
|
Total comprehensive income | | | | | | | | | 133,549 |
|
Balance at September 30, 2017 | $ | 21,665 |
| | $ | 2,144,931 |
| | $ | 5,910 |
| | $ | 17,644 |
| | $ | 2,190,150 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| General Partners’ Capital | | Limited Partners’ Capital | |
Balance at December 31, 2022 | $ | 24,492 | | | $ | 2,424,663 | | | $ | (1,211) | | | $ | 22,235 | | | $ | 2,470,179 | |
Issuances of Common Units, net of issuance costs and tax withholdings | (2) | | | (200) | | | — | | | — | | | (202) | |
Redemptions of Common Units | (2) | | | (161) | | | — | | | — | | | (163) | |
Distributions on Common Units ($1.50 per unit) | (1,610) | | | (159,385) | | | — | | | — | | | (160,995) | |
Distributions on Preferred Units ($64.6875 per unit) | (19) | | | (1,845) | | | — | | | — | | | (1,864) | |
Share-based compensation expense, net of forfeitures | 62 | | | 6,092 | | | — | | | — | | | 6,154 | |
| | | | | | | | | |
| | | | | | | | | |
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | 209 | | | 20,702 | | | — | | | — | | | 20,911 | |
Net loss attributable to noncontrolling interests in consolidated affiliates | 5 | | | 483 | | | — | | | (488) | | | — | |
Deconsolidation of affiliate | — | | | — | | | — | | | (17,281) | | | (17,281) | |
Comprehensive income: | | | | | | | | | |
Net income | 1,120 | | | 110,875 | | | — | | | — | | | 111,995 | |
Other comprehensive loss | — | | | — | | | (223) | | | — | | | (223) | |
Total comprehensive income | | | | | | | | | 111,772 | |
Balance as of September 30, 2023 | $ | 24,255 | | | $ | 2,401,224 | | | $ | (1,434) | | | $ | 4,466 | | | $ | 2,428,511 | |
|
| | | | | | | | | | | | | | | | | | | |
| Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| General Partners’ Capital | | Limited Partners’ Capital | |
Balance at December 31, 2015 | $ | 15,759 |
| | $ | 1,560,309 |
| | $ | (3,811 | ) | | $ | 17,975 |
| | $ | 1,590,232 |
|
Issuances of Common Units, net of issuance costs and tax withholdings | 1,872 |
| | 185,342 |
| | — |
| | — |
| | 187,214 |
|
Distributions on Common Units | (1,274 | ) | | (126,117 | ) | | — |
| | — |
| | (127,391 | ) |
Distributions on Preferred Units | (19 | ) | | (1,858 | ) | | — |
| | — |
| | (1,877 | ) |
Share-based compensation expense, net of forfeitures | 54 |
| | 5,358 |
| | — |
| | — |
| | 5,412 |
|
Distributions to noncontrolling interests in consolidated affiliates | — |
| | — |
| | — |
| | (966 | ) | | (966 | ) |
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | (221 | ) | | (21,876 | ) | | — |
| | — |
| | (22,097 | ) |
Net (income) attributable to noncontrolling interests in consolidated affiliates | (9 | ) | | (932 | ) | | — |
| | 941 |
| | — |
|
Comprehensive income: | | | | | | | | | |
Net income | 5,141 |
| | 508,962 |
| | — |
| | — |
| | 514,103 |
|
Other comprehensive loss | — |
| | — |
| | (5,449 | ) | | — |
| | (5,449 | ) |
Total comprehensive income | | | | | | | | | 508,654 |
|
Balance at September 30, 2016 | $ | 21,303 |
| | $ | 2,109,188 |
| | $ | (9,260 | ) | | $ | 17,950 |
| | $ | 2,139,181 |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Capital - Continued
(Unaudited and in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| General Partners’ Capital | | Limited Partners’ Capital | |
Balance as of June 30, 2022 | $ | 24,723 | | | $ | 2,447,691 | | | $ | (1,062) | | | $ | 21,528 | | | $ | 2,492,880 | |
Issuances of Common Units, net of issuance costs and tax withholdings | 4 | | | 358 | | | — | | | — | | | 362 | |
Redemptions of Common Units | (31) | | | (3,070) | | | — | | | — | | | (3,101) | |
Distributions on Common Units ($0.50 per unit) | (536) | | | (53,037) | | | — | | | — | | | (53,573) | |
Distributions on Preferred Units ($21.5625 per unit) | (7) | | | (614) | | | — | | | — | | | (621) | |
Share-based compensation expense, net of forfeitures | 7 | | | 700 | | | — | | | — | | | 707 | |
| | | | | | | | | |
| | | | | | | | | |
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | 202 | | | 19,957 | | | — | | | — | | | 20,159 | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | (4) | | | (353) | | | — | | | 357 | | | — | |
Comprehensive income: | | | | | | | | | |
Net income | 401 | | | 39,709 | | | — | | | — | | | 40,110 | |
Other comprehensive loss | — | | | — | | | (75) | | | — | | | (75) | |
Total comprehensive income | | | | | | | | | 40,035 | |
Balance as of September 30, 2022 | $ | 24,759 | | | $ | 2,451,341 | | | $ | (1,137) | | | $ | 21,885 | | | $ | 2,496,848 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| General Partners’ Capital | | Limited Partners’ Capital | |
Balance at December 31, 2021 | $ | 24,492 | | | $ | 2,424,802 | | | $ | (973) | | | $ | 22,416 | | | $ | 2,470,737 | |
Issuances of Common Units, net of issuance costs and tax withholdings | 48 | | | 4,749 | | | — | | | — | | | 4,797 | |
Redemptions of Common Units | (31) | | | (3,070) | | | — | | | — | | | (3,101) | |
Distributions on Common Units ($1.50 per unit) | (1,607) | | | (159,053) | | | — | | | — | | | (160,660) | |
Distributions on Preferred Units ($64.688 per unit) | (19) | | | (1,845) | | | — | | | — | | | (1,864) | |
Share-based compensation expense, net of forfeitures | 68 | | | 6,775 | | | — | | | — | | | 6,843 | |
Distributions to noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | (1,411) | | | (1,411) | |
| | | | | | | | | |
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | 469 | | | 46,387 | | | — | | | — | | | 46,856 | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | (9) | | | (871) | | | | | 880 | | | — | |
Comprehensive income: | | | | | | | | | |
Net income | 1,348 | | | 133,467 | | | — | | | — | | | 134,815 | |
Other comprehensive loss | — | | | — | | | (164) | | | — | | | (164) | |
Total comprehensive income | | | | | | | | | 134,651 | |
Balance as of September 30, 2022 | $ | 24,759 | | | $ | 2,451,341 | | | $ | (1,137) | | | $ | 21,885 | | | $ | 2,496,848 | |
See accompanying notes to consolidated financial statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(Unaudited and in thousands) | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2023 | | 2022 |
Operating activities: | | | | Operating activities: | | | |
Net income | $ | 132,588 |
| | $ | 514,103 |
| Net income | $ | 111,995 | | | $ | 134,815 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | 168,934 |
| | 161,734 |
| Depreciation and amortization | 220,416 | | | 212,466 | |
Amortization of lease incentives and acquisition-related intangible assets and liabilities | (666 | ) | | (1,599 | ) | Amortization of lease incentives and acquisition-related intangible assets and liabilities | 712 | | | (342) | |
Share-based compensation expense | 5,764 |
| | 5,412 |
| Share-based compensation expense | 6,154 | | | 6,843 | |
Allowance for losses on accounts and accrued straight-line rents receivable | 435 |
| | 1,846 |
| |
| Net credit losses on operating lease receivables | | Net credit losses on operating lease receivables | 1,850 | | | 3,167 | |
| Accrued interest on mortgages and notes receivable | (391 | ) | | (364 | ) | Accrued interest on mortgages and notes receivable | (750) | | | (67) | |
Amortization of debt issuance costs | 2,445 |
| | 2,645 |
| Amortization of debt issuance costs | 3,645 | | | 3,096 | |
Amortization of cash flow hedges | 992 |
| | 2,336 |
| Amortization of cash flow hedges | (223) | | | (164) | |
Amortization of mortgages and notes payable fair value adjustments | 422 |
| | (175 | ) | Amortization of mortgages and notes payable fair value adjustments | (257) | | | (60) | |
Impairments of real estate assets | 1,445 |
| | — |
| Impairments of real estate assets | — | | | 36,515 | |
Gains on debt extinguishment | (826 | ) | | — |
| |
| Net gains on disposition of property | (25,181 | ) | | (428,656 | ) | Net gains on disposition of property | (19,818) | | | (63,546) | |
Gain on deconsolidation of controlling interest in affiliate | | Gain on deconsolidation of controlling interest in affiliate | (11,778) | | | — | |
| Equity in earnings of unconsolidated affiliates | (6,757 | ) | | (5,010 | ) | Equity in earnings of unconsolidated affiliates | (1,902) | | | (1,083) | |
| Distributions of earnings from unconsolidated affiliates | 4,815 |
| | 3,523 |
| Distributions of earnings from unconsolidated affiliates | 1,153 | | | 606 | |
Settlement of cash flow hedges | 7,322 |
| | — |
| |
| Changes in operating assets and liabilities: | | | | Changes in operating assets and liabilities: | |
Accounts receivable | 916 |
| | 4,798 |
| Accounts receivable | 1,182 | | | (11,454) | |
Prepaid expenses and other assets | 2,735 |
| | (2,243 | ) | Prepaid expenses and other assets | (4,376) | | | (2,150) | |
Accrued straight-line rents receivable | (24,473 | ) | | (18,931 | ) | Accrued straight-line rents receivable | (20,196) | | | (20,558) | |
Accounts payable, accrued expenses and other liabilities | (308 | ) | | (7,447 | ) | Accounts payable, accrued expenses and other liabilities | (3,636) | | | 21,795 | |
Net cash provided by operating activities | 270,211 |
| | 231,972 |
| Net cash provided by operating activities | 284,171 | | | 319,879 | |
Investing activities: | | | | Investing activities: | | | |
Investments in acquired real estate and related intangible assets, net of cash acquired | — |
| | (110,249 | ) | Investments in acquired real estate and related intangible assets, net of cash acquired | (18,544) | | | (224,934) | |
Investments in development in-process | (121,367 | ) | | (122,839 | ) | Investments in development in-process | (26,179) | | | (26,220) | |
Investments in tenant improvements and deferred leasing costs | (78,691 | ) | | (63,715 | ) | Investments in tenant improvements and deferred leasing costs | (68,625) | | | (90,910) | |
Investments in building improvements | (41,862 | ) | | (51,714 | ) | Investments in building improvements | (55,155) | | | (45,289) | |
| Net proceeds from disposition of real estate assets | 85,538 |
| | 680,994 |
| Net proceeds from disposition of real estate assets | 51,538 | | | 130,038 | |
| Distributions of capital from unconsolidated affiliates | 11,670 |
| | 3,052 |
| Distributions of capital from unconsolidated affiliates | 3,864 | | | — | |
Investments in mortgages and notes receivable | — |
| | (7,934 | ) | Investments in mortgages and notes receivable | (9,763) | | | (24) | |
Repayments of mortgages and notes receivable | 2,435 |
| | 869 |
| Repayments of mortgages and notes receivable | 200 | | | 215 | |
Investments in and advances to unconsolidated affiliates | (10,063 | ) | | (105 | ) | Investments in and advances to unconsolidated affiliates | (100,052) | | | (81,693) | |
Repayments from unconsolidated affiliates | — |
| | 448 |
| |
Changes in restricted cash and other investing activities | (24,225 | ) | | (23,310 | ) | |
Net cash provided by/(used in) investing activities | (176,565 | ) | | 305,497 |
| |
Repayments of preferred equity from unconsolidated affiliates | | Repayments of preferred equity from unconsolidated affiliates | 80,000 | | | — | |
| Changes in earnest money deposits | | Changes in earnest money deposits | 15,500 | | | (3,000) | |
Changes in other investing activities | | Changes in other investing activities | (3,751) | | | 224 | |
Net cash used in investing activities | | Net cash used in investing activities | (130,967) | | | (341,593) | |
Financing activities: | | | | Financing activities: | | | |
Distributions on Common Units | (138,577 | ) | | (127,391 | ) | Distributions on Common Units | (160,995) | | | (160,660) | |
Special distribution on Common Units | (83,149 | ) | | — |
| |
| Redemptions/repurchases of Preferred Units | (28 | ) | | (130 | ) | Redemptions/repurchases of Preferred Units | (10) | | | — | |
Distributions on Preferred Units | (1,869 | ) | | (1,877 | ) | |
Redemptions of Common Units | | Redemptions of Common Units | (163) | | | (3,101) | |
Dividends on Preferred Units | | Dividends on Preferred Units | (1,864) | | | (1,864) | |
Distributions to noncontrolling interests in consolidated affiliates | (1,231 | ) | | (966 | ) | Distributions to noncontrolling interests in consolidated affiliates | — | | | (1,411) | |
Proceeds from the issuance of Common Units | 75,517 |
| | 194,518 |
| Proceeds from the issuance of Common Units | 1,349 | | | 7,200 | |
Costs paid for the issuance of Common Units | (1,244 | ) | | (2,888 | ) | Costs paid for the issuance of Common Units | (226) | | | (247) | |
Repurchase of units related to tax withholdings | (3,966 | ) | | (4,416 | ) | Repurchase of units related to tax withholdings | (1,325) | | | (2,156) | |
Borrowings on revolving credit facility | 492,300 |
| | 257,800 |
| Borrowings on revolving credit facility | 219,000 | | | 275,000 | |
Repayments of revolving credit facility | (420,300 | ) | | (528,800 | ) | Repayments of revolving credit facility | (400,000) | | | (235,000) | |
Borrowings on mortgages and notes payable | 456,001 |
| | 75,000 |
| Borrowings on mortgages and notes payable | 200,000 | | | 350,000 | |
Repayments of mortgages and notes payable | (507,114 | ) | | (395,455 | ) | Repayments of mortgages and notes payable | (5,018) | | | (204,807) | |
Payments of debt extinguishment costs | (57 | ) | | — |
| |
Changes in debt issuance costs and other financing activities | (4,555 | ) | | (1,513 | ) | |
Net cash used in financing activities | (138,272 | ) | | (536,118 | ) | |
Net increase/(decrease) in cash and cash equivalents | $ | (44,626 | ) | | $ | 1,351 |
| |
| Payments for debt issuance costs and other financing activities | | Payments for debt issuance costs and other financing activities | (2,961) | | | (3,345) | |
Net cash provided by/(used in) financing activities | | Net cash provided by/(used in) financing activities | (152,213) | | | 19,609 | |
Net increase/(decrease) in cash and cash equivalents and restricted cash | | Net increase/(decrease) in cash and cash equivalents and restricted cash | $ | 991 | | | $ | (2,105) | |
See accompanying notes to consolidated financial statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows - Continued
(Unaudited and in thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Net increase/(decrease) in cash and cash equivalents and restricted cash | $ | 991 | | | $ | (2,105) | |
Cash from deconsolidation of controlling interest in affiliate | (6,386) | | | — | |
Cash and cash equivalents and restricted cash at beginning of the period | 26,105 | | | 31,198 | |
Cash and cash equivalents and restricted cash at end of the period | $ | 20,710 | | | $ | 29,093 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Net increase/(decrease) in cash and cash equivalents | $ | (44,626 | ) | | $ | 1,351 |
|
Cash and cash equivalents at beginning of the period | 49,490 |
| | 5,036 |
|
Cash and cash equivalents at end of the period | $ | 4,864 |
| | $ | 6,387 |
|
Reconciliation of cash and cash equivalents and restricted cash:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash and cash equivalents at end of the period | $ | 16,901 | | | $ | 23,055 | |
Restricted cash at end of the period | 3,809 | | | 6,038 | |
Cash and cash equivalents and restricted cash at end of the period | $ | 20,710 | | | $ | 29,093 | |
Supplemental disclosure of cash flow information:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash paid for interest, net of amounts capitalized | $ | 105,342 | | | $ | 82,908 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash paid for interest, net of amounts capitalized | $ | 50,025 |
| | $ | 58,138 |
|
Supplemental disclosure of non-cash investing and financing activities:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| | | |
Changes in accrued capital expenditures (1) | 17,275 | | | (10,180) | |
Write-off of fully depreciated real estate assets | 54,489 | | | 42,817 | |
Write-off of fully amortized leasing costs | 25,605 | | | 22,739 | |
Write-off of fully amortized debt issuance costs | — | | | 1,216 | |
| | | |
Adjustment of Redeemable Common Units to fair value | (21,525) | | | (47,470) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Unrealized losses on cash flow hedges | $ | (31 | ) | | $ | (7,785 | ) |
Changes in accrued capital expenditures | (6,327 | ) | | 25,037 |
|
Write-off of fully depreciated real estate assets | 41,860 |
| | 28,783 |
|
Write-off of fully amortized leasing costs | 28,343 |
| | 16,075 |
|
Write-off of fully amortized debt issuance costs | 4,324 |
| | 916 |
|
Adjustment of Redeemable Common Units to fair value | 2,649 |
| | 21,576 |
|
__________
(1)Accrued capital expenditures included in accounts payable, accrued expenses and other liabilities as of September 30, 2023 and 2022 were $70.7 million and $44.4 million, respectively.
See accompanying notes to consolidated financial statements.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20172023
(tabular dollar amounts in thousands, except per share and per unit data)
(Unaudited)
1. Description of Business and Significant Accounting Policies
Description of Business
Highwoods Properties, Inc. (the “Company”) is a fully integrated office real estate investment trust (“REIT”) that provides leasing, management, development, constructionowns, develops, acquires, leases and other customer-related services for itsmanages properties primarily in the best business districts of Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond and for third parties.Tampa. The Company conducts its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At As of September 30, 2017,2023, we owned or had an interest in 30.928.5 million rentable square feet of in-service properties, 0.61.6 million rentable square feet of office properties under development and development land with approximately 400 acres5.2 million rentable square feet of development land.potential office build out.
Capital Structure
The Company is the sole general partner of the Operating Partnership. AtAs of September 30, 2017,2023, the Company owned all of the Preferred Units and 102.8105.3 million, or 97.3%98.0%, of the Common Units in the Operating Partnership. Limited partners owned the remaining 2.82.2 million Common Units. During the nine months ended September 30, 2017,2023, the Company redeemed 8,000193,907 Common Units for a like number of shares of Common Stock.Stock and 7,294 Common Units for cash. As a result of this activity, the percentage of Common Units owned by the Company increased from 97.8% as of December 31, 2022 to 98.0% as of September 30, 2023.
Common Stock Offerings
During the first quarter of 2017,2023, we entered into separate equity distribution agreements in which the Company may offer and sell up to $300.0 million in aggregate gross sales price of shares of Common Stock. During each of the three and nine months ended September 30, 2017,2023, the Company issued 1,363,919no shares of Common Stock under its equity distribution agreements at an average gross sales price of $50.85 per share and received net proceeds, after sales commissions, of $68.3 million.agreements.
Basis of Presentation
Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
The Company'sCompany’s Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which the Company has the controlling interest. The Operating Partnership'sPartnership’s Consolidated Financial Statements include wholly owned subsidiaries and those entities in which the Operating Partnership has the controlling interest. We consolidate joint venture investments, such as interests in partnerships and limited liability companies, when we control the major operating and financial policies of the investment through majority ownership, in our capacity as a general partner or managing member or through some other contractual right. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary.
As of September 30, 2023, we are involved with six entities we determined to be variable interest entities, one of which we are the primary beneficiary and is consolidated and five of which we are not the primary beneficiary and are not consolidated. We also own three properties through a joint venture investment that were deconsolidated effective January 1, 2023 (see Note 3).
All intercompany transactions and accounts have been eliminated.
TheIn the opinion of management, the unaudited interim consolidated financial statementsConsolidated Financial Statements and accompanying unaudited consolidated financial information in the opinion of management, contain all adjustments (including normal recurring accruals) necessary for a fair presentation of our financial position, results of operations and cash flows. We have condensed or omitted certain notes and other information from the interim Consolidated Financial Statements presented in this Quarterly Report as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 20162022 Annual Report on Form 10-K.
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates.
Insurance
15
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
1. Description of Business and Significant Accounting Policies – Continued
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB"(“FASB”) issued an accounting standards update ("ASU"(“ASU”) that requiresprovides temporary optional expedients and exceptions to ease the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that we identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction pricefinancial reporting burdens related to the performance obligations inexpected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the contractSecured Overnight Financing Rate (“SOFR”). These optional expedients and recognize revenue when we satisfy the performance obligations. We will also be required to disclose information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Upon adoption of the ASU in 2018, we expect to utilize the modified retrospective approach. We are currently conducting our analysis of the impact of theexceptions provide guidance on contract modifications and hedge accounting. We have completed the transition to SOFR rates for our Consolidated Financial Statements, including our internal control processes, and have an active project team working on the evaluation and implementation of the guidance. Our analysis of our non-lease related revenue contracts, which include primarily real estate sales, management, development and construction fee income and transient parking income, indicates that the adoption of this ASU will impact the financial statement disclosure of these contractsoutstanding debt instruments with no material impact on the timing of revenue recognition; however, we continue to evaluate the impacts of adoption of this ASU. We expect additional impact of this ASU upon adoption of the ASU related to accounting for leases discussed below for certain lease revenue streams that will be required to be evaluated as non-lease components using the five-step revenue recognition model.
The FASB issued an ASU that adds to and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. The ASU is required to be adopted in 2018 with retrospective application required. We do not expect such adoption to have a material effect on our Consolidated Statements of Cash Flows.
The FASB issued an ASU that clarifies and narrows the definition of a business used in determining whether to account for a transaction as an asset acquisition or business combination. The guidance requires evaluation of the fair value of the assets acquired to determine if it is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the transferred assets would not be a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. The ASU is required to be adopted in 2018 and applied prospectively. Upon adoption of this ASU, we expect that the majority of our future acquisitions would not meet the definition of a business; therefore, the related acquisition costs would be capitalized as part of the purchase price.
The FASB issued an ASU that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The guidance requires modification accounting if the value, vesting conditions or classification of the award changes. The ASU is required to be adopted in 2018 and applied prospectively. We do not expect such adoption to have a material effect on our Consolidated Financial Statements.
The FASB issued an ASU
2. Leases
Operating Leases
We generally lease our office properties to lessees in exchange for fixed monthly payments that cover rent, property taxes, insurance and certain cost recoveries, primarily common area maintenance. Office properties owned by us that are under lease are primarily located in Atlanta, Charlotte, Nashville, Orlando, Pittsburgh, Raleigh, Richmond and Tampa and are leased to a wide variety of lessees across many industries. Our leases are operating leases and mostly range from three to 10 years. We recognized rental and other revenues related to operating lease payments of $203.8 million and $203.9 million during the three months ended September 30, 2023 and 2022, respectively, and $617.0 million and $608.1 million during the nine months ended September 30, 2023 and 2022, respectively. Included in these amounts are variable lease payments of $17.7 million and $16.9 million during the three months ended September 30, 2023 and 2022, respectively, and $54.6 million and $51.9 million during the nine months ended September 30, 2023 and 2022, respectively.
3. Investments in and Advances to Affiliates
Unconsolidated Affiliates
- Highwoods-Markel Associates, LLC (“Markel”)
Markel is a joint venture in which sets outwe own a 50.0% interest that was consolidated as of December 31, 2022 because we controlled the principles for the recognition, measurement, presentationmajor operating and disclosure of leases for both lessees and lessors. We are currently conducting our initial analysisfinancial policies of the impactentity. Effective January 1, 2023, the agreement governing the joint venture was modified to require the consent of both partners for major operating and financial policies of the guidance on our Consolidated Financial Statements and have an active project team working on the evaluation and implementation of the guidance. We currently believe that the adoption of the ASU will not significantly change the accounting for operating leases on our Consolidated Balance Sheets where we are the lessor, and that such leases will be accounted for in a similar method to existing standards with the underlying leased asset being reported and recognized as a real estate asset. In addition, the guidance requires lessors to capitalize and amortize only incremental direct leasing costs.entity. As a result, we expect that upon the adoption of the ASU, we will no longer be able to capitalizeMarkel was deconsolidated effective January 1, 2023, and amortize certain leasing related costs and instead will expense these costs as incurred. We are in the process of evaluating the impact to our results of operations of expensing such costs. The ASUthis joint venture is required to be adopted in 2019 using a modified retrospective approach. Our initial analysis of our leases also indicates that upon adoption of the ASU, certain lease revenue streams that are currentlynow accounted for using the lease accounting standard will be accounted for as non-lease components using the five-step revenue recognition model discussed above.equity method of accounting. We continuerecognized a gain on deconsolidation of $11.8 million related to evaluate other impacts of adoption of this ASU.
The FASB issued an ASU that eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire changeadjusting our retained interest in the joint venture to fair valuevalue. The assets of Markel can be used only to settle obligations of the joint venture, and its creditors have no recourse to our wholly owned assets.
- Granite Park Six JV, LLC/ GPI 23 Springs JV, LLC (“Granite Park Six joint venture”/“23Springs joint venture”)
During 2022, we entered the Dallas market through the formation of two joint ventures with Granite Properties (“Granite”) to develop Granite Park Six and 23Springs. We own a hedging instrument50.0% interest in each of these two joint ventures. We determined that we have a variable interest in both the Granite Park Six and 23Springs joint ventures primarily because the entities were designed to pass along interest rate risk, equity price risk and operation risk to us and Granite as equity holders. The joint ventures were further determined to be presentedvariable interest entities as they require additional subordinated financial support in the same income statement lineform of loans because the initial equity investments provided by us and Granite were not sufficient to finance the planned investments and operations. We concluded we do not have the power to direct matters that most significantly impact the activities of either entity and therefore do not qualify as the hedged item whenprimary beneficiary. Accordingly, the hedged item affects earnings. The ASU is required to be adopted in 2019 using a modified retrospective approach. We doentities are not expect such adoption to have a material effect onconsolidated. As of September 30, 2023, our Consolidated Financial Statements.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
1. Description of Business and Significant Accounting Policies – Continued
The FASB issued an ASU that requires, among other things, the use of a new current expected credit loss ("CECL") model in determining our allowances for doubtful accounts with respect to accounts receivable, accrued straight-line rents receivable and mortgages and notes receivable. The CECL model requires that we estimate our lifetime expected credit loss with respect to these receivablesarrangements was limited to the carrying value of each investment balance. Our investment balances were $41.7 million and record allowances$63.6 million as of September 30, 2023 for Granite Park Six and 23Springs, respectively. The assets of the Granite Park Six and 23Springs joint ventures can be used only to settle obligations of the respective joint venture, and their creditors have no recourse to our wholly owned assets.
- M+O JV, LLC (“McKinney & Olive joint venture”)
During 2022, we expanded our Dallas market presence by acquiring McKinney & Olive through the formation of another joint venture with Granite. We own a 50.0% interest in this joint venture. Upon formation, we determined that when deducted fromwe had a variable interest in the McKinney & Olive joint venture primarily because the entity was designed to pass along interest rate risk, equity price risk and operation risk to us and Granite as equity holders. The McKinney & Olive joint venture was further determined to be a variable interest entity as it requires additional subordinated financial support in the form of a loan because the initial equity investments by us and Granite, including the additional preferred equity provided by us, were not sufficient to finance its planned investments and operations. We concluded we do not have the power to direct matters that most significantly impact the activities of the entity and therefore do not qualify as the primary beneficiary. Accordingly, the entity is not consolidated.
During the second quarter of 2023, we and Granite each contributed an additional $40.0 million of common equity to the McKinney & Olive joint venture. Such proceeds were then used by the joint venture to redeem our $80.0 million short-term preferred equity investment in full. The $40.0 million of net proceeds were used to repay amounts outstanding under our $750.0 million revolving credit facility. Prior to the redemption, the preferred equity received monthly distributions at a rate of SOFR plus 350 basis points. This reconsideration event did not change our initial conclusion that the McKinney & Olive joint venture is a variable interest entity of which we are not the primary beneficiary. As such, the entity remains unconsolidated.
As of September 30, 2023, our risk of loss with respect to this arrangement was $121.4 million, which represents the carrying value of our investment balance. The assets of the McKinney & Olive joint venture can be used only to settle obligations of the joint venture, and its creditors have no recourse to our wholly owned assets.
- Midtown East Tampa, LLC (“Midtown East joint venture”)
During 2022, we formed the Midtown East joint venture in Tampa with The Bromley Companies (“Bromley”). We own a 50.0% interest in this joint venture. We determined that we have a variable interest in the Midtown East joint venture primarily because the entity was designed to pass along interest rate risk, equity price risk and operation risk to us as both a debt and equity holder and Bromley as an equity holder. The Midtown East joint venture was further determined to be a variable interest
entity as it requires additional subordinated financial support in the form of a loan because the initial equity investments provided by us and Bromley were not sufficient to finance its planned investments and operations. We concluded we do not have the power to direct matters that most significantly impact the activities of the entity and therefore do not qualify as the primary beneficiary. Accordingly, the entity is not consolidated. As of September 30, 2023, our risk of loss with respect to this arrangement was limited to the carrying value of our investment balance of $7.8 million as no amounts were outstanding under the loan we have provided to the joint venture. The assets of the Midtown East joint venture can be used only to settle obligations of the joint venture, and its creditors have no recourse to our wholly owned assets.
- Brand/HRLP 2827 Peachtree LLC (“2827 Peachtree joint venture”)
During 2021, we formed the 2827 Peachtree joint venture in Atlanta with Brand Properties, LLC (“Brand”). We own a 50.0% interest in this joint venture. We determined that we have a variable interest in the 2827 Peachtree joint venture primarily because the entity was designed to pass along interest rate risk, equity price risk and operation risk to us as both a debt and equity holder and Brand as an equity holder. The 2827 Peachtree joint venture was further determined to be a variable interest entity as it requires additional subordinated financial support in the form of a loan because the initial equity investments provided by us and Brand were not sufficient to finance its planned investments and operations. We concluded we do not have the power to direct matters that most significantly impact the activities of the entity and therefore do not qualify as the primary beneficiary. Accordingly, the entity is not consolidated. As of September 30, 2023, our risk of loss with respect to this arrangement was $49.1 million, which consists of the $13.6 million carrying value of our investment balance plus the $35.5 million outstanding balance of the receivables, representloan we have provided to the net amounts expectedjoint venture. The outstanding balance on the loan is recorded in investments in and advances to unconsolidated affiliates on our Consolidated Balance Sheets. The assets of the 2827 Peachtree joint venture can be used only to settle obligations of the joint venture, and its creditors have no recourse to our wholly owned assets.
Consolidated Affiliate
- HRLP MTW, LLC (“Midtown West joint venture”)
In 2019, we formed the Midtown West joint venture in Tampa with Bromley. We own an 80.0% interest in this joint venture. We determined that we have a variable interest in the Midtown West joint venture primarily because the entity was designed to pass along interest rate risk, equity price risk and operation risk to us as both a debt and an equity holder and Bromley as an equity holder. The Midtown West joint venture was further determined to be collected. We will also be required to disclose information about how we developed the allowances, including changesa variable interest entity as it requires additional subordinated financial support in the factors (e.g., portfolio mix, credit trends, unemployment, gross domestic product, etc.) that influencedform of a loan because the initial equity investments provided by us and Bromley were not sufficient to finance its planned investments and operations. We, as majority owner and managing member and through our estimate of expected credit losses and the reasons for those changes. We will apply the ASU’s provisionscontrol rights as a cumulative-effect adjustment to retained earnings upon adoption in 2020. We areset forth in the processjoint venture’s governance documents, were determined to be the primary beneficiary as we have both the power to direct the activities that most significantly affect the entity (primarily lease rates, property operations and capital expenditures) and significant economic exposure through our equity investment and loan commitment. As such, the Midtown West joint venture is consolidated and all intercompany transactions and accounts are eliminated. The following table sets forth the assets and liabilities of evaluating this ASU.the Midtown West joint venture included on our Consolidated Balance Sheets:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| | | |
Net real estate assets | $ | 60,588 | | | $ | 59,854 | |
| | | |
Cash and cash equivalents | $ | 1,375 | | | $ | 1,009 | |
Accounts receivable | $ | 420 | | | $ | 1,490 | |
Accrued straight-line rents receivable | $ | 4,666 | | | $ | 1,921 | |
Deferred leasing costs, net | $ | 2,826 | | | $ | 2,677 | |
Prepaid expenses and other assets, net | $ | 1,036 | | | $ | 153 | |
| | | |
Accounts payable, accrued expenses and other liabilities | $ | 2,756 | | | $ | 1,212 | |
2.
The assets of the Midtown West joint venture can be used only to settle obligations of the joint venture, and its creditors have no recourse to our wholly owned assets.
4. Real Estate Assets
DispositionsAcquisitions
During 2021, we acquired development land in Nashville for a purchase price, including capitalized acquisition costs, of $16.0 million, which was fully paid in or prior to the second quarter of 2023.
During the thirdsecond quarter of 2017,2023, we acquired land in Raleigh for a purchase price, including capitalized acquisition costs, of $2.7 million.
Dispositions
During the second quarter of 2023, we sold a total of 12three buildings in Tampa and Raleigh for an aggregate salesales price of $78.0$51.3 million (before closing credits to buyer of $2.5 million) and recorded aggregate gains on disposition of property of $19.8$19.4 million.
During the first quarter of 2017, we sold a building for a sale price of $13.0 million (before closing credits to buyer of $1.2 million) and recorded a gain on disposition of property of $5.3 million.
Impairments
During the third quarter of 2017, we recorded aggregate impairments of real estate assets of $1.4 million, which resulted from a change in market-based inputs and our assumptions about the use of the assets.
3. Mortgages and Notes Receivable
Mortgages and notes receivable were $6.8 million and $8.8 million at September 30, 2017 and December 31, 2016, respectively. We evaluate the ability to collect our mortgages and notes receivable by monitoring the leasing statistics and/or market fundamentals of these assets. As of September 30, 2017, our mortgages and notes receivable were not in default and there were no other indicators of impairment.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
4.5. Intangible Assets and Below Market Lease Liabilities
The following table sets forth total intangible assets and acquisition-related below market lease liabilities, net of accumulated amortization:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Assets: | | | |
Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets) | $ | 407,005 | | | $ | 416,579 | |
Less accumulated amortization | (173,926) | | | (163,751) | |
| $ | 233,079 | | | $ | 252,828 | |
Liabilities (in accounts payable, accrued expenses and other liabilities): | | | |
Acquisition-related below market lease liabilities | $ | 52,271 | | | $ | 55,304 | |
Less accumulated amortization | (30,620) | | | (29,859) | |
| $ | 21,651 | | | $ | 25,445 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Assets: | | | |
Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets) | $ | 348,628 |
| | $ | 353,581 |
|
Less accumulated amortization | (145,814 | ) | | (140,081 | ) |
| $ | 202,814 |
| | $ | 213,500 |
|
Liabilities (in accounts payable, accrued expenses and other liabilities): | | | |
Acquisition-related below market lease liabilities | $ | 60,304 |
| | $ | 61,221 |
|
Less accumulated amortization | (26,905 | ) | | (23,074 | ) |
| $ | 33,399 |
| | $ | 38,147 |
|
The following table sets forth amortization of intangible assets and below market lease liabilities:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization) | $ | 10,696 | | | $ | 11,425 | | | $ | 32,409 | | | $ | 33,603 | |
Amortization of lease incentives (in rental and other revenues) | $ | 655 | | | $ | 500 | | | $ | 1,983 | | | $ | 1,369 | |
Amortization of acquisition-related intangible assets (in rental and other revenues) | $ | 823 | | | $ | 797 | | | $ | 2,523 | | | $ | 2,448 | |
| | | | | | | |
Amortization of acquisition-related below market lease liabilities (in rental and other revenues) | $ | (1,260) | | | $ | (1,473) | | | $ | (3,794) | | | $ | (4,159) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization) | $ | 10,130 |
| | $ | 10,111 |
| | $ | 30,882 |
| | $ | 33,177 |
|
Amortization of lease incentives (in rental and other revenues) | $ | 444 |
| | $ | 273 |
| | $ | 1,284 |
| | $ | 1,374 |
|
Amortization of acquisition-related intangible assets (in rental and other revenues) | $ | 671 |
| | $ | 901 |
| | $ | 2,382 |
| | $ | 2,904 |
|
Amortization of acquisition-related intangible assets (in rental property and other expenses) | $ | 140 |
| | $ | 140 |
| | $ | 416 |
| | $ | 417 |
|
Amortization of acquisition-related below market lease liabilities (in rental and other revenues) | $ | (1,576 | ) | | $ | (1,734 | ) | | $ | (4,748 | ) | | $ | (6,294 | ) |
The following table sets forth scheduled future amortization of intangible assets and below market lease liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Amortization of Deferred Leasing Costs and Acquisition-Related Intangible Assets (in Depreciation and Amortization) | | Amortization of Lease Incentives (in Rental and Other Revenues) | | Amortization of Acquisition-Related Intangible Assets (in Rental and Other Revenues) | | | | Amortization of Acquisition-Related Below Market Lease Liabilities (in Rental and Other Revenues) |
October 1 through December 31, 2023 | | | | $ | 10,963 | | | $ | 609 | | | $ | 779 | | | | | $ | (1,225) | |
2024 | | | | 38,910 | | | 1,984 | | | 3,088 | | | | | (4,240) | |
2025 | | | | 31,262 | | | 1,879 | | | 2,220 | | | | | (2,727) | |
2026 | | | | 26,969 | | | 1,677 | | | 1,860 | | | | | (2,431) | |
2027 | | | | 23,248 | | | 1,476 | | | 1,518 | | | | | (2,062) | |
Thereafter | | | | 74,830 | | | 4,209 | | | 5,598 | | | | | (8,966) | |
| | | | $ | 206,182 | | | $ | 11,834 | | | $ | 15,063 | | | | | $ | (21,651) | |
Weighted average remaining amortization periods as of September 30, 2023 (in years) | | | | 7.5 | | 7.3 | | 7.2 | | | | 8.2 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Amortization of Deferred Leasing Costs and Acquisition-Related Intangible Assets (in Depreciation and Amortization) | | Amortization of Lease Incentives (in Rental and Other Revenues) | | Amortization of Acquisition-Related Intangible Assets (in Rental and Other Revenues) | | Amortization of Acquisition-Related Intangible Assets (in Rental Property and Other Expenses) | | Amortization of Acquisition-Related Below Market Lease Liabilities (in Rental and Other Revenues) |
October 1 through December 31, 2017 | | $ | 10,019 |
| | $ | 427 |
| | $ | 469 |
| | $ | 134 |
| | $ | (1,497 | ) |
2018 | | 35,970 |
| | 1,599 |
| | 1,680 |
| | 553 |
| | (5,962 | ) |
2019 | | 30,311 |
| | 1,377 |
| | 1,286 |
| | 553 |
| | (5,492 | ) |
2020 | | 25,589 |
| | 1,101 |
| | 967 |
| | 525 |
| | (5,180 | ) |
2021 | | 21,254 |
| | 886 |
| | 647 |
| | — |
| | (4,409 | ) |
Thereafter | | 61,333 |
| | 4,249 |
| | 1,885 |
| | — |
| | (10,859 | ) |
| | $ | 184,476 |
| | $ | 9,639 |
| | $ | 6,934 |
| | $ | 1,765 |
| | $ | (33,399 | ) |
Weighted average remaining amortization periods as of September 30, 2017 (in years) | | 7.6 |
| | 9.5 |
| | 6.5 |
| | 3.2 |
| | 6.8 |
|
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
5.6. Mortgages and Notes Payable
The following table sets forth our mortgages and notes payable:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Secured indebtedness | $ | 677,839 | | | $ | 483,988 | |
Unsecured indebtedness | 2,549,495 | | | 2,729,620 | |
Less-unamortized debt issuance costs | (15,149) | | | (16,393) | |
Total mortgages and notes payable, net | $ | 3,212,185 | | | $ | 3,197,215 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Secured indebtedness | $ | 99,421 |
| | $ | 128,204 |
|
Unsecured indebtedness | 1,875,239 |
| | 1,826,145 |
|
Less-unamortized debt issuance costs | (8,262 | ) | | (6,302 | ) |
Total mortgages and notes payable, net | $ | 1,966,398 |
| | $ | 1,948,047 |
|
AtAs of September 30, 2017,2023, our secured mortgage loans were collateralized by real estate assets with an aggregate undepreciated book value of $147.7$1,170.7 million.
At September 30, 2017, we had a $475.0Our $750.0 million unsecured revolving credit facility that wasis scheduled to mature in January 2018.March 2025 and includes an accordion feature that currently allows for an additional $200.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-month periods. The interest rate was LIBORon our revolving credit facility is SOFR plus 110a related spread adjustment of 10 basis points and thea borrowing spread of 85 basis points, based on current credit ratings. The annual facility fee wasis 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 may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. There was $72.0$205.0 million outstanding under our revolving credit facility atas of both September 30, 20172023 and $0.6October 17, 2023. As of both September 30, 2023 and October 17, 2023, we had $0.9 million of outstanding letters of credit, which reducedreduces the availability on theour revolving credit facility. As a result, the unused capacity of our revolving credit facility atas of both September 30, 20172023 and October 17, 2023 was $402.4$544.1 million.
During the secondfirst quarter of 2017, we prepaid without penalty a secured mortgage loan with a fair market value of $108.2 million with an effective interest rate of 4.22% that was originally scheduled to mature in November 2017. We recorded $0.4 million of gain on debt extinguishment related to this prepayment.
During 2015, we acquired our joint venture partner’s 77.2% interest in a building in Orlando. Simultaneously with this acquisition, the joint venture's previously existing mortgage note was restructured into a new $18.0 million first mortgage note and a $10.2 million subordinated note, both of which were scheduled to mature in July 2017. The first mortgage and subordinated notes had effective interest rates of 5.36% and 8.6%, respectively. The subordinated note and accrued interest thereon can be satisfied, in certain circumstances, upon payment of a "waterfall payment" equal to a cash payment of 50.0% of the amount by which the net sale proceeds or appraised value at the time of refinancing exceeded (1) the outstanding principal of the first mortgage note, (2) funds deposited by us into escrow to fund tenant improvements, leasing commissions and building improvements and (3) a 10.0% return on such funds deposited by us into escrow. As of the date of such restructuring, the subordinated note was recorded at a projected waterfall payment of $1.0 million. During the second quarter of 2017, both notes were retired upon payment of the $18.0 million principal balance on the first mortgage note and a $0.5 million waterfall payment relating to the subordinated note, which resulted in $0.4 million of gain on debt extinguishment.
During the second quarter of 2017,2023, we obtained a $100.0$200.0 million, five-year secured mortgage loan from a third party lender, with an effective fixed interest rate of 4.0%5.69%. This loan is scheduled to mature in May 2029.April 2028. We incurred $0.8$1.3 million of debt issuance costs, in connection with this loan, which will be amortized over the term of the loan.
During the first quarter of 2017, the Operating Partnership issued $300.0 million aggregate principal amount of 3.875% notes due 2027, less original issue discount of $4.0 million. These notes were priced to yield 4.038%. Underwriting fees and other expenses were incurred that aggregated $2.5 million; these costs were deferred and will be amortized over the term of the notes.
During the first quarter of 2017, we paid off at maturity $379.7 million principal amount of 5.85% unsecured notes.
During the first quarter of 2017, we amended our $150.0 million unsecured bank term loan that is scheduled to mature in January 2022 by increasing the borrowed amount to $200.0 million. The interest rate on this term loan at our current credit ratings is LIBOR plus 110 basis points. The underlying LIBOR rate with respect to $50.0 million of the unsecured bank term loan has been effectively fixed for the term through floating-to-fixed interest rate swaps as discussed in Note 6. We incurred $0.3 million of debt issuance costs in connection with this amendment, which will be amortized along with existing unamortized debt issuance costs over the remaining term.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
5. Mortgages and Notes Payable - Continued
We are currently in compliance with financial covenants and other requirements with respect to our consolidated debt.
We have considered our short-term liquidity needs within one year from October 24, 20172023 (the date of issuance of the quarterly financial statements) and the adequacy of our estimated cash flows from operating activities and other expectedavailable financing sources to meet these needs. In particular, we have considered our scheduled debt maturities during such one-year period, including the $200.0 million principal amount of unsecured notes due April 15, 2018.bank term loan that is scheduled to mature in October 2024 (but which can be extended for one additional year at our option). We have concluded it is probable we will meet these short-term liquidity requirements through a combination of the following:
•available cash and cash equivalents;
•cash flows from operating activities;
•issuance of debt securities by the Operating Partnership (some of which debt securities may be hedged to a fixed interest rate pursuant to the forward-starting swaps referred to in Note 6);Partnership;
•issuance of secured debt;
•bank term loans;
•borrowings under our revolving credit facility;
•issuance of equity securities by the Company or the Operating Partnership; and
•the disposition of non-core assets.
| |
6. | Derivative Financial Instruments |
During the second quarter of 2017, we entered into $150.0 million notional amount of forward-starting swaps that effectively lock the underlying 10-year treasury rate at 2.44% with respect to a planned issuance of debt securities by the Operating Partnership expected to occur prior to May 15, 2018.
During the second quarter of 2017, we entered into floating-to-fixed interest rate swaps through January 2022 with respect to an aggregate of $50.0 million LIBOR-based borrowings. These swaps effectively fix the underlying one-month LIBOR rate at a weighted average rate of 1.693%.
During 2016, we entered into $150.0 million notional amount of forward-starting swaps that effectively locked the underlying 10-year treasury rate at 1.90% with respect to a planned issuance of debt securities by the Operating Partnership. Upon issuance of the $300.0 million aggregate principal amount of 3.875% notes due 2027 during the first quarter of 2017, we terminated the forward-starting swaps resulting in an unrealized gain of $7.3 million in accumulated other comprehensive income.
The counterparties under these swaps are major financial institutions. The swap agreements contain a provision whereby if we default on certain of our indebtedness and which default results in repayment of such indebtedness being, or becoming capable of being, accelerated by the lender, then we could also be declared in default on our swaps.
Our interest rate swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income/(loss) each reporting period. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedges during the nine months ended September 30, 2017 and 2016. We have no collateral requirements related to our interest rate swaps.
Amounts reported in accumulated other comprehensive income/(loss) related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the period from October 1, 2017 through September 30, 2018, we estimate that less than $0.1 million will be reclassified as a net increase to interest expense.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
| |
6. | Derivative Financial Instruments - Continued |
The following table sets forth the gross fair value of our derivatives:7. Noncontrolling Interests
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Derivatives: | | | |
Derivatives designated as cash flow hedges in prepaid expenses and other assets: | | | |
Interest rate swaps | $ | 306 |
| | $ | 7,619 |
|
Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities: | | | |
Interest rate swaps | $ | 1,059 |
| | $ | 1,870 |
|
The following table sets forth the effect of our cash flow hedges on accumulated other comprehensive income/(loss) and interest expense:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Derivatives Designated as Cash Flow Hedges: | | | | | | | |
Amount of unrealized gains/(losses) recognized in accumulated other comprehensive income/(loss) on derivatives (effective portion): | | | | | | | |
Interest rate swaps | $ | (347 | ) | | $ | 1,610 |
| | $ | (31 | ) | | $ | (7,785 | ) |
Amount of net losses reclassified out of accumulated other comprehensive income/(loss) into contractual interest expense (effective portion): | | | | | | | |
Interest rate swaps | $ | 211 |
| | $ | 758 |
| | $ | 992 |
| | $ | 2,336 |
|
| |
7. | Noncontrolling Interests |
Noncontrolling Interests in Consolidated Affiliates
At As of September 30, 2017,2023, our noncontrolling interestsinterest in consolidated affiliates relaterelates to our joint venture partner's 50.0%20.0% interest in office properties in Richmond.the Midtown West joint venture. Our joint venture partner is an unrelated third party.
Noncontrolling Interests in the Operating Partnership
The following table sets forth the Company'sCompany’s noncontrolling interests in the Operating Partnership:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Beginning noncontrolling interests in the Operating Partnership | $ | 56,206 | | | $ | 84,583 | | | $ | 65,977 | | | $ | 111,689 | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | (6,334) | | | (16,952) | | | (15,521) | | | (42,480) | |
| | | | | | | |
Conversions of Common Units to Common Stock | (4,795) | | | — | | | (4,795) | | | (1,251) | |
Redemptions of Common Units | — | | | (3,101) | | | (163) | | | (3,101) | |
Net income attributable to noncontrolling interests in the Operating Partnership | 453 | | | 881 | | | 2,386 | | | 3,049 | |
Distributions to noncontrolling interests in the Operating Partnership | (1,078) | | | (1,192) | | | (3,432) | | | (3,687) | |
Total noncontrolling interests in the Operating Partnership | $ | 44,452 | | | $ | 64,219 | | | $ | 44,452 | | | $ | 64,219 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Beginning noncontrolling interests in the Operating Partnership | $ | 144,802 |
| | $ | 126,429 |
|
Adjustment of noncontrolling interests in the Operating Partnership to fair value | 3,297 |
| | 13,390 |
|
Conversions of Common Units to Common Stock | (408 | ) | | (3,006 | ) |
Net income attributable to noncontrolling interests in the Operating Partnership | 3,502 |
| | 14,876 |
|
Distributions to noncontrolling interests in the Operating Partnership | (3,742 | ) | | (3,684 | ) |
Total noncontrolling interests in the Operating Partnership | $ | 147,451 |
| | $ | 148,005 |
|
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
| |
7. | Noncontrolling Interests - Continued |
The following table sets forth net income available for common stockholders and transfers from the Company'sCompany’s noncontrolling interests in the Operating Partnership:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income available for common stockholders | $ | 22,101 | | | $ | 38,251 | | | $ | 108,233 | | | $ | 129,022 | |
Increase in additional paid in capital from conversions of Common Units to Common Stock | 4,795 | | | — | | | 4,795 | | | 1,251 | |
Redemptions of Common Units | — | | | 3,101 | | | 163 | | | 3,101 | |
| | | | | | | |
Change from net income available for common stockholders and transfers from noncontrolling interests | $ | 26,896 | | | $ | 41,352 | | | $ | 113,191 | | | $ | 133,374 | |
8. Disclosure About Fair Value of Financial Instruments
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income available for common stockholders | $ | 57,040 |
| | $ | 31,971 |
| | $ | 126,303 |
| | $ | 496,409 |
|
Increase in additional paid in capital from conversions of Common Units to Common Stock | 103 |
| | 1,448 |
| | 408 |
| | 3,006 |
|
Change from net income available for common stockholders and transfers from noncontrolling interests | $ | 57,143 |
| | $ | 33,419 |
| | $ | 126,711 |
| | $ | 499,415 |
|
| |
8. | Disclosure About Fair Value of Financial Instruments |
The following summarizes the three levels of inputs that we use to measure fair value.
Level 1. Quoted prices in active markets for identical assets or liabilities.
Our Level 1 asset is our investment in marketable securities that we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 liability is our non-qualified deferred compensation obligation. The Company'sCompany’s Level 1 noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company.
Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Our Level 2 assets include the fair value of our mortgages and notes receivable and certain interest rate swaps.receivable. Our Level 2 liabilities include the fair value of our mortgages and notes payable and remainingany interest rate swaps.
The fair value of mortgages and notes receivable and mortgages and notes payable is estimated by the income approach, utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants. The fair value of any interest rate swaps is determined using the market standard
methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of interest rate swaps are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition, credit valuation adjustments are considered in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented.
Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Our Level 3 assets included (1)include any real estate assets recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which wereare valued using the terms of definitive sales contracts or the sales comparison approach, and (2) our tax increment financing bond, which was not routinely traded but whose fair value was determined by the income approach utilizing contractual cash flows and market-based interest rates to estimate the projected redemption value based on quoted bid/ask prices for similar unrated municipal bonds. Our tax increment financing bond was assigned in conjunction with a sale during the first quarter of 2016. The estimated fair value at the date of sale of $11.2 million was equal to the outstanding principal amount due on the bond.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
| |
8. | Disclosure About Fair Value of Financial Instruments - Continued |
The following table sets forth our assets and liabilities and the Company's noncontrolling interests in the Operating Partnership that are measured or disclosed at fair value within the fair value hierarchy.
|
| | | | | | | | | | | | | | | | |
| | | | Level 1 | | Level 2 | | Level 3 |
| | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities | | Significant Observable Inputs | | Significant Unobservable Inputs |
Fair Value at September 30, 2017: | | | | | | | | |
Assets: | | | | | | | | |
Mortgages and notes receivable, at fair value (1) | | $ | 6,789 |
| | $ | — |
| | $ | 6,789 |
| | $ | — |
|
Interest rate swaps (in prepaid expenses and other assets) | | 306 |
| | — |
| | 306 |
| | — |
|
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | | 2,269 |
| | 2,269 |
| | — |
| | — |
|
Impaired real estate assets | | 5,888 |
| | — |
| | — |
| | 5,888 |
|
Total Assets | | $ | 15,252 |
| | $ | 2,269 |
| | $ | 7,095 |
| | $ | 5,888 |
|
Noncontrolling Interests in the Operating Partnership | | $ | 147,451 |
| | $ | 147,451 |
| | $ | — |
| | $ | — |
|
Liabilities: | | | | | | | | |
Mortgages and notes payable, net, at fair value (1) | | $ | 1,983,723 |
| | $ | — |
| | $ | 1,983,723 |
| | $ | — |
|
Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | | 1,059 |
| | — |
| | 1,059 |
| | — |
|
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | | 2,269 |
| | 2,269 |
| | — |
| | — |
|
Total Liabilities | | $ | 1,987,051 |
| | $ | 2,269 |
| | $ | 1,984,782 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
Fair Value at December 31, 2016: | | | | | | | | |
Assets: | | | | | | | | |
Mortgages and notes receivable, at fair value (1) | | $ | 8,833 |
| | $ | — |
| | $ | 8,833 |
| | $ | — |
|
Interest rate swaps (in prepaid expenses and other assets) | | 7,619 |
| | — |
| | 7,619 |
| | — |
|
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | | 2,451 |
| | 2,451 |
| | — |
| | — |
|
Total Assets | | $ | 18,903 |
| | $ | 2,451 |
| | $ | 16,452 |
| | $ | — |
|
Noncontrolling Interests in the Operating Partnership | | $ | 144,802 |
| | $ | 144,802 |
| | $ | — |
| | $ | — |
|
Liabilities: | | | | | | | | |
Mortgages and notes payable, net, at fair value (1) | | $ | 1,965,611 |
| | $ | — |
| | $ | 1,965,611 |
| | $ | — |
|
Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | | 1,870 |
| | — |
| | 1,870 |
| | — |
|
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | | 2,451 |
| | 2,451 |
| | — |
| | — |
|
Total Liabilities | | $ | 1,969,932 |
| | $ | 2,451 |
| | $ | 1,967,481 |
| | $ | — |
|
__________
(1) Amounts recorded at historical cost on our Consolidated Balance Sheets at September 30, 2017 and December 31, 2016.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
| |
8. | Disclosure About Fair Value of Financial Instruments - Continued |
The impaired real estate assets that were measured in the third quarter of 2017 at fair value and deemed to be Level 3 assets were valued based primarily on market-based inputs and our assumptions about the use of the assets, as observable inputs were not available. In the absence of observable inputs, we estimate the fair value of real estate using unobservable local and national industry market data such as comparable sales, appraisals, brokers’ opinions of value and/or the terms of definitive sales contracts and appraisals to assist us in our estimation of fair value.contracts. Significant increases or decreases in any valuation inputs in isolation would result in a significantly lower or higher fair value measurement.
The following table sets forth our assets and liabilities and the Company’s noncontrolling interests in the Operating Partnership that are measured or disclosed at fair value within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Level 1 | | Level 2 | | |
| | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities | | Significant Observable Inputs | | |
Fair Value as of September 30, 2023: | | | | | | | | |
Assets: | | | | | | | | |
Mortgages and notes receivable, at fair value (1) | | $ | 9,783 | | | $ | — | | | $ | 9,783 | | | |
| | | | | | | | |
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | | 2,056 | | | 2,056 | | | — | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total Assets | | $ | 11,839 | | | $ | 2,056 | | | $ | 9,783 | | | |
Noncontrolling Interests in the Operating Partnership | | $ | 44,452 | | | $ | 44,452 | | | $ | — | | | |
Liabilities: | | | | | | | | |
Mortgages and notes payable, net, at fair value (1) | | $ | 2,794,265 | | | $ | — | | | $ | 2,794,265 | | | |
| | | | | | | | |
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | | 2,056 | | | 2,056 | | | — | | | |
| | | | | | | | |
| | | | | | | | |
Total Liabilities | | $ | 2,796,321 | | | $ | 2,056 | | | $ | 2,794,265 | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Fair Value as of December 31, 2022: | | | | | | | | |
Assets: | | | | | | | | |
Mortgages and notes receivable, at fair value (1) | | $ | 1,051 | | | $ | — | | | $ | 1,051 | | | |
| | | | | | | | |
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | | 2,564 | | | 2,564 | | | — | | | |
| | | | | | | | |
| | | | | | | | |
Total Assets | | $ | 3,615 | | | $ | 2,564 | | | $ | 1,051 | | | |
Noncontrolling Interests in the Operating Partnership | | $ | 65,977 | | | $ | 65,977 | | | $ | — | | | |
Liabilities: | | | | | | | | |
Mortgages and notes payable, net, at fair value (1) | | $ | 2,832,973 | | | $ | — | | | $ | 2,832,973 | | | |
| | | | | | | | |
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | | 2,564 | | | 2,564 | | | — | | | |
| | | | | | | | |
| | | | | | | | |
Total Liabilities | | $ | 2,835,537 | | | $ | 2,564 | | | $ | 2,832,973 | | | |
__________
(1) Amounts are not recorded at fair value on our Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022.
As of January 1, 2023, there was a level 3 investment in Markel that was measured at a fair value of $57.1 million upon deconsolidation. The estimated fair value was calculated using a broker opinion of value, which incorporates an income approach, as observable inputs were not available. Key assumptions used in the fair value calculation for the operating buildings were an estimated discount rate of 10.8% and an estimated terminal capitalization rate of 8.8%. The estimated fair value of the surrounding land currently used for parking was calculated based on its multifamily development potential, which was determined to be the highest and best use of the land.
9. Share-Based Payments
During the nine months ended September 30, 2017,2023, the Company granted 168,748 stock options with an exercise price equal to the last reported stock price of our Common Stock on the New York Stock Exchange on the last trading day prior to the date of grant. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $6.72. During the nine months endedSeptember 30, 2017, the Company also granted 61,404155,717 shares of time-based restricted stock and 49,344126,736 shares of total return-based restricted stock with weighted average grant date fair values per share of $52.49$26.42 and $49.59,$27.06, respectively. We recorded share-based compensation expense of $0.9$0.8 million and $0.7 million during each of the three months ended September 30, 20172023 and 20162022, respectively, and $5.8$6.2 million and $5.4$6.8 million during the nine months endedSeptember 30, 20172023 and 2016,2022, respectively. At As of September 30, 2017,2023, there was $6.1$4.9 million of total unrecognized share-based compensation costs, which will be recognized over a weighted average remaining contractual term of 2.32.2 years.
| |
10. | Accumulated Other Comprehensive Income/(Loss) |
10. Real Estate and Other Assets Held For Sale
The following table sets forth the componentsassets held for sale as of accumulated other comprehensive income/(loss):September 30, 2023 and December 31, 2022, which are considered non-core:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Assets: | | | |
Land | $ | 513 | | | $ | — | |
Buildings and tenant improvements | 846 | | | — | |
| | | |
Land held for development | 3,294 | | | — | |
Less-accumulated depreciation | (131) | | | — | |
Net real estate assets | 4,522 | | | — | |
| | | |
| | | |
Prepaid expenses and other assets, net | 184 | | | — | |
Real estate and other assets, net, held for sale | $ | 4,706 | | | $ | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Cash flow hedges: | | | | | | | |
Beginning balance | $ | 6,046 |
| | $ | (11,628 | ) | | $ | 4,949 |
| | $ | (3,811 | ) |
Unrealized gains/(losses) on cash flow hedges | (347 | ) | | 1,610 |
| | (31 | ) | | (7,785 | ) |
Amortization of cash flow hedges (1) | 211 |
| | 758 |
| | 992 |
| | 2,336 |
|
Total accumulated other comprehensive income/(loss) | $ | 5,910 |
|
| $ | (9,260 | ) | | $ | 5,910 |
| | $ | (9,260 | ) |
__________
(1) Amounts reclassified out of accumulated other comprehensive income/(loss) into contractual interest expense.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
| |
11. | Discontinued Operations |
11. Earnings Per Share and Per Unit
The following tables set forth the results of operations for the three and nine months ended September 30, 2017 and 2016 and cash flows for the nine months ended September 30, 2017 and 2016 related to discontinued operations:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Rental and other revenues | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8,484 |
|
Operating expenses: | | | | | | | |
Rental property and other expenses | — |
| | — |
| | — |
| | 3,334 |
|
General and administrative | — |
| | — |
| | — |
| | 1,388 |
|
Total operating expenses | — |
| | — |
| | — |
| | 4,722 |
|
Interest expense | — |
| | — |
| | — |
| | 85 |
|
Other income | — |
| | — |
| | — |
| | 420 |
|
Income from discontinued operations | — |
| | — |
| | — |
| | 4,097 |
|
Net gains on disposition of discontinued operations | — |
| | — |
| | — |
| | 414,496 |
|
Total income from discontinued operations | $ | — |
| | $ | — |
| | $ | — |
| | $ | 418,593 |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash flows from operating activities | $ | — |
| | $ | 2,040 |
|
Cash flows from investing activities | $ | — |
| | $ | 417,097 |
|
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
| |
12. | Earnings Per Share and Per Unit |
The following table sets forth the computation of basic and diluted earnings per share of the Company:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Earnings per Common Share - basic: | | | | | | | |
Numerator: | | | | | | | |
Income from continuing operations | $ | 59,549 |
| | $ | 33,840 |
| | $ | 132,588 |
| | $ | 95,510 |
|
Net (income) attributable to noncontrolling interests in the Operating Partnership from continuing operations | (1,571 | ) | | (926 | ) | | (3,502 | ) | | (2,611 | ) |
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations | (315 | ) | | (319 | ) | | (914 | ) | | (941 | ) |
Dividends on Preferred Stock | (623 | ) | | (624 | ) | | (1,869 | ) | | (1,877 | ) |
Income from continuing operations available for common stockholders | 57,040 |
| | 31,971 |
| | 126,303 |
| | 90,081 |
|
Income from discontinued operations | — |
| | — |
| | — |
| | 418,593 |
|
Net (income) attributable to noncontrolling interests in the Operating Partnership from discontinued operations | — |
| | — |
| | — |
| | (12,265 | ) |
Income from discontinued operations available for common stockholders | — |
| | — |
| | — |
| | 406,328 |
|
Net income available for common stockholders | $ | 57,040 |
| | $ | 31,971 |
| | $ | 126,303 |
| | $ | 496,409 |
|
Denominator: | | | | | | | |
Denominator for basic earnings per Common Share – weighted average shares | 103,237 |
| | 98,973 |
| | 102,489 |
| | 97,669 |
|
Earnings per Common Share - basic: | | | | | | | |
Income from continuing operations available for common stockholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.23 |
| | $ | 0.92 |
|
Income from discontinued operations available for common stockholders | — |
| | — |
| | — |
| | 4.16 |
|
Net income available for common stockholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.23 |
| | $ | 5.08 |
|
Earnings per Common Share - diluted: | | | | | | | |
Numerator: | | | | | | | |
Income from continuing operations | $ | 59,549 |
| | $ | 33,840 |
| | $ | 132,588 |
| | $ | 95,510 |
|
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations | (315 | ) | | (319 | ) | | (914 | ) | | (941 | ) |
Dividends on Preferred Stock | (623 | ) | | (624 | ) | | (1,869 | ) | | (1,877 | ) |
Income from continuing operations available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership | 58,611 |
| | 32,897 |
| | 129,805 |
| | 92,692 |
|
Income from discontinued operations available for common stockholders | — |
| | — |
| | — |
| | 418,593 |
|
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership | $ | 58,611 |
| | $ | 32,897 |
| | $ | 129,805 |
| | $ | 511,285 |
|
Denominator: | | | | | | | |
Denominator for basic earnings per Common Share – weighted average shares | 103,237 |
| | 98,973 |
| | 102,489 |
| | 97,669 |
|
Add: | | | | | | | |
Stock options using the treasury method | 76 |
| | 108 |
| | 79 |
| | 94 |
|
Noncontrolling interests Common Units | 2,832 |
| | 2,858 |
| | 2,834 |
| | 2,882 |
|
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions (1) | 106,145 |
| | 101,939 |
| | 105,402 |
| | 100,645 |
|
Earnings per Common Share - diluted: | | | | | | | |
Income from continuing operations available for common stockholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.23 |
| | $ | 0.92 |
|
Income from discontinued operations available for common stockholders | — |
| | — |
| | — |
| | 4.16 |
|
Net income available for common stockholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.23 |
| | $ | 5.08 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Earnings per Common Share - basic: | | | | | | | |
Numerator: | | | | | | | |
Net income | $ | 23,171 | | | $ | 40,110 | | | $ | 111,995 | | | $ | 134,815 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | (453) | | | (881) | | | (2,386) | | | (3,049) | |
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | 5 | | | (357) | | | 488 | | | (880) | |
Dividends on Preferred Stock | (622) | | | (621) | | | (1,864) | | | (1,864) | |
Net income available for common stockholders | $ | 22,101 | | | $ | 38,251 | | | $ | 108,233 | | | $ | 129,022 | |
Denominator: | | | | | | | |
Denominator for basic earnings per Common Share – weighted average shares (1) | 105,671 | | | 105,184 | | | 105,473 | | | 105,094 | |
Net income available for common stockholders | $ | 0.21 | | | $ | 0.36 | | | $ | 1.03 | | | $ | 1.23 | |
Earnings per Common Share - diluted: | | | | | | | |
Numerator: | | | | | | | |
Net income | $ | 23,171 | | | $ | 40,110 | | | $ | 111,995 | | | $ | 134,815 | |
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | 5 | | | (357) | | | 488 | | | (880) | |
Dividends on Preferred Stock | (622) | | | (621) | | | (1,864) | | | (1,864) | |
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership | $ | 22,554 | | | $ | 39,132 | | | $ | 110,619 | | | $ | 132,071 | |
Denominator: | | | | | | | |
Denominator for basic earnings per Common Share – weighted average shares (1) | 105,671 | | | 105,184 | | | 105,473 | | | 105,094 | |
Add: | | | | | | | |
Stock options using the treasury method | — | | | — | | | — | | | 7 | |
Noncontrolling interests Common Units | 2,161 | | | 2,417 | | | 2,289 | | | 2,469 | |
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions | 107,832 | | | 107,601 | | | 107,762 | | | 107,570 | |
Net income available for common stockholders | $ | 0.21 | | | $ | 0.36 | | | $ | 1.03 | | | $ | 1.23 | |
__________
| |
(1) | Includes all unvested restricted stock where dividends on such restricted stock are non-forfeitable. |
(1)Includes all unvested restricted stock where dividends on such restricted stock are non-forfeitable.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
| |
12. | Earnings Per Share and Per Unit - Continued |
The following table sets forth the computation of basic and diluted earnings per unit of the Operating Partnership:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
Earnings per Common Unit - basic: | | | | | | | | Earnings per Common Unit - basic: | | | | | | | |
Numerator: | | | | | | | | Numerator: | |
Income from continuing operations | $ | 59,549 |
| | $ | 33,840 |
| | $ | 132,588 |
| | $ | 95,510 |
| |
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations | (315 | ) | | (319 | ) | | (914 | ) | | (941 | ) | |
Net income | | Net income | $ | 23,171 | | | $ | 40,110 | | | $ | 111,995 | | | $ | 134,815 | |
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | | Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | 5 | | | (357) | | | 488 | | | (880) | |
Distributions on Preferred Units | (623 | ) | | (624 | ) | | (1,869 | ) | | (1,877 | ) | Distributions on Preferred Units | (622) | | | (621) | | | (1,864) | | | (1,864) | |
Income from continuing operations available for common unitholders | 58,611 |
| | 32,897 |
| | 129,805 |
| | 92,692 |
| |
Income from discontinued operations available for common unitholders | — |
| | — |
| | — |
| | 418,593 |
| |
| Net income available for common unitholders | $ | 58,611 |
| | $ | 32,897 |
| | $ | 129,805 |
| | $ | 511,285 |
| Net income available for common unitholders | $ | 22,554 | | | $ | 39,132 | | | $ | 110,619 | | | $ | 132,071 | |
Denominator: | | | | | | | | Denominator: | | | | | | | |
Denominator for basic earnings per Common Unit – weighted average units | 105,660 |
| | 101,422 |
| | 104,914 |
| | 100,142 |
| |
Earnings per Common Unit - basic: | | | | | | | | |
Income from continuing operations available for common unitholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.24 |
| | $ | 0.93 |
| |
Income from discontinued operations available for common unitholders | — |
| | — |
| | — |
| | 4.18 |
| |
Denominator for basic earnings per Common Unit – weighted average units (1) | | Denominator for basic earnings per Common Unit – weighted average units (1) | 107,423 | | | 107,192 | | | 107,353 | | | 107,154 | |
| Net income available for common unitholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.24 |
| | $ | 5.11 |
| Net income available for common unitholders | $ | 0.21 | | | $ | 0.37 | | | $ | 1.03 | | | $ | 1.23 | |
Earnings per Common Unit - diluted: | | | | | | | | Earnings per Common Unit - diluted: | | | | | | | |
Numerator: | | | | | | | | Numerator: | |
Income from continuing operations | $ | 59,549 |
| | $ | 33,840 |
| | $ | 132,588 |
| | $ | 95,510 |
| |
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations | (315 | ) | | (319 | ) | | (914 | ) | | (941 | ) | |
Net income | | Net income | $ | 23,171 | | | $ | 40,110 | | | $ | 111,995 | | | $ | 134,815 | |
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | | Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | 5 | | | (357) | | | 488 | | | (880) | |
Distributions on Preferred Units | (623 | ) | | (624 | ) | | (1,869 | ) | | (1,877 | ) | Distributions on Preferred Units | (622) | | | (621) | | | (1,864) | | | (1,864) | |
Income from continuing operations available for common unitholders | 58,611 |
| | 32,897 |
| | 129,805 |
| | 92,692 |
| |
Income from discontinued operations available for common unitholders | — |
| | — |
| | — |
| | 418,593 |
| |
| Net income available for common unitholders | $ | 58,611 |
| | $ | 32,897 |
| | $ | 129,805 |
| | $ | 511,285 |
| Net income available for common unitholders | $ | 22,554 | | | $ | 39,132 | | | $ | 110,619 | | | $ | 132,071 | |
Denominator: | | | | | | | | Denominator: | | | | | | | |
Denominator for basic earnings per Common Unit – weighted average units | 105,660 |
| | 101,422 |
| | 104,914 |
| | 100,142 |
| |
Denominator for basic earnings per Common Unit – weighted average units (1) | | Denominator for basic earnings per Common Unit – weighted average units (1) | 107,423 | | | 107,192 | | | 107,353 | | | 107,154 | |
Add: | | | | | | | | Add: | |
Stock options using the treasury method | 76 |
| | 108 |
| | 79 |
| | 94 |
| Stock options using the treasury method | — | | | — | | | — | | | 7 | |
Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions (1) | 105,736 |
| | 101,530 |
| | 104,993 |
| | 100,236 |
| |
Earnings per Common Unit - diluted: | | | | | | | | |
Income from continuing operations available for common unitholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.24 |
| | $ | 0.92 |
| |
Income from discontinued operations available for common unitholders | — |
| | — |
| | — |
| | 4.18 |
| |
Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions | | Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions | 107,423 | | | 107,192 | | | 107,353 | | | 107,161 | |
| Net income available for common unitholders | $ | 0.55 |
| | $ | 0.32 |
| | $ | 1.24 |
| | $ | 5.10 |
| Net income available for common unitholders | $ | 0.21 | | | $ | 0.37 | | | $ | 1.03 | | | $ | 1.23 | |
__________
| |
(1) | Includes all unvested restricted stock where distributions on such restricted stock are non-forfeitable. |
(1)Includes all unvested restricted stock where distributions on such restricted stock are non-forfeitable
.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
The following tables summarize the rental and other revenues and net operating income for our office properties. Net operating income is the primary industry property-level performance metric used by our chief operating decision maker and which is defined as rental and other revenues less rental property and other expenses, for each of our reportable segments.expenses.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Rental and Other Revenues: | | | | | | | |
| | | | | | | |
Atlanta | $ | 35,666 | | | $ | 35,804 | | | $ | 107,991 | | | $ | 106,805 | |
Charlotte | 21,079 | | | 18,825 | | | 63,452 | | | 52,643 | |
Nashville | 42,884 | | | 44,587 | | | 130,084 | | | 130,640 | |
Orlando | 14,356 | | | 13,634 | | | 43,300 | | | 40,298 | |
| | | | | | | |
Raleigh | 45,354 | | | 45,220 | | | 136,933 | | | 137,051 | |
Richmond | 8,746 | | | 10,872 | | | 27,103 | | | 31,837 | |
Tampa | 25,000 | | | 23,590 | | | 75,344 | | | 71,169 | |
Total Office Segment | 193,085 | | | 192,532 | | | 584,207 | | | 570,443 | |
Other | 14,010 | | | 14,465 | | | 42,931 | | | 46,773 | |
Total Rental and Other Revenues | $ | 207,095 | | | $ | 206,997 | | | $ | 627,138 | | | $ | 617,216 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net Operating Income: | | | | | | | |
| | | | | | | |
Atlanta | $ | 21,796 | | | $ | 22,524 | | | $ | 68,289 | | | $ | 69,472 | |
Charlotte | 16,388 | | | 14,275 | | | 47,719 | | | 40,132 | |
Nashville | 31,389 | | | 33,154 | | | 95,530 | | | 97,093 | |
Orlando | 8,734 | | | 7,865 | | | 26,358 | | | 24,264 | |
| | | | | | | |
Raleigh | 32,523 | | | 32,822 | | | 99,799 | | | 101,557 | |
Richmond | 5,733 | | | 7,112 | | | 18,656 | | | 21,700 | |
Tampa | 15,574 | | | 14,351 | | | 47,614 | | | 44,912 | |
Total Office Segment | 132,137 | | | 132,103 | | | 403,965 | | | 399,130 | |
Other | 7,765 | | | 8,560 | | | 23,942 | | | 27,961 | |
Total Net Operating Income | 139,902 | | | 140,663 | | | 427,907 | | | 427,091 | |
Reconciliation to net income: | | | | | | | |
Depreciation and amortization | (74,765) | | | (73,057) | | | (220,416) | | | (212,466) | |
Impairments of real estate assets | — | | | (1,515) | | | — | | | (36,515) | |
General and administrative expenses | (8,873) | | | (9,586) | | | (30,668) | | | (32,733) | |
Interest expense | (34,247) | | | (26,392) | | | (101,408) | | | (75,812) | |
Other income | 754 | | | 138 | | | 3,082 | | | 621 | |
Gains on disposition of property | — | | | 9,402 | | | 19,818 | | | 63,546 | |
Gain on deconsolidation of affiliate | — | | | — | | | 11,778 | | | — | |
Equity in earnings of unconsolidated affiliates | 400 | | | 457 | | | 1,902 | | | 1,083 | |
Net income | $ | 23,171 | | | $ | 40,110 | | | $ | 111,995 | | | $ | 134,815 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Rental and Other Revenues: | | | | | | | |
Office: | | | | | | | |
Atlanta | $ | 36,471 |
| | $ | 33,340 |
| | $ | 106,027 |
| | $ | 101,188 |
|
Greensboro | 5,370 |
| | 5,167 |
| | 15,956 |
| | 15,351 |
|
Memphis | 11,459 |
| | 12,330 |
| | 35,077 |
| | 36,275 |
|
Nashville | 28,945 |
| | 23,979 |
| | 81,471 |
| | 71,760 |
|
Orlando | 13,309 |
| | 11,678 |
| | 38,183 |
| | 34,360 |
|
Pittsburgh | 14,719 |
| | 14,386 |
| | 44,420 |
| | 43,721 |
|
Raleigh | 30,524 |
| | 27,767 |
| | 90,167 |
| | 84,013 |
|
Richmond | 11,152 |
| | 11,414 |
| | 33,200 |
| | 33,420 |
|
Tampa | 25,072 |
| | 22,836 |
| | 72,578 |
| | 67,088 |
|
Total Office Segment | 177,021 |
| | 162,897 |
| | 517,079 |
| | 487,176 |
|
Other | 3,164 |
| | 3,372 |
| | 9,797 |
| | 10,812 |
|
Total Rental and Other Revenues | $ | 180,185 |
| | $ | 166,269 |
| | $ | 526,876 |
| | $ | 497,988 |
|
13. Subsequent Events
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amountsWe own an 80.0% interest in thousands, except per share and per unit data)
| |
13. | Segment Information - Continued |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net Operating Income: | | | | | | | |
Office: | | | | | | | |
Atlanta | $ | 23,600 |
| | $ | 20,718 |
| | $ | 68,150 |
| | $ | 63,681 |
|
Greensboro | 3,367 |
| | 3,187 |
| | 10,116 |
| | 9,544 |
|
Memphis | 6,930 |
| | 7,753 |
| | 21,474 |
| | 22,566 |
|
Nashville | 21,000 |
| | 17,042 |
| | 59,250 |
| | 51,470 |
|
Orlando | 7,999 |
| | 6,633 |
| | 23,007 |
| | 19,638 |
|
Pittsburgh | 8,822 |
| | 8,482 |
| | 26,396 |
| | 25,193 |
|
Raleigh | 21,960 |
| | 19,525 |
| | 65,345 |
| | 59,935 |
|
Richmond | 6,987 |
| | 7,602 |
| | 22,453 |
| | 22,718 |
|
Tampa | 15,972 |
| | 14,349 |
| | 46,297 |
| | 42,037 |
|
Total Office Segment | 116,637 |
| | 105,291 |
| | 342,488 |
| | 316,782 |
|
Other | 2,314 |
| | 2,358 |
| | 6,904 |
| | 7,491 |
|
Total Net Operating Income | 118,951 |
| | 107,649 |
| | 349,392 |
| | 324,273 |
|
Reconciliation to income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates: | | | | | | | |
Depreciation and amortization | (56,973 | ) | | (52,923 | ) | | (168,934 | ) | | (161,734 | ) |
Impairments of real estate assets | (1,445 | ) | | — |
| | (1,445 | ) | | — |
|
General and administrative expenses | (9,247 | ) | | (9,863 | ) | | (29,787 | ) | | (29,327 | ) |
Interest expense | (17,191 | ) | | (18,566 | ) | | (51,208 | ) | | (58,756 | ) |
Other income | 558 |
| | 833 |
| | 2,632 |
| | 1,884 |
|
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates | $ | 34,653 |
| | $ | 27,130 |
| | $ | 100,650 |
| | $ | 76,340 |
|
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)
the Midtown West joint venture, which is consolidated. On October 18, 2017, we entered into23, 2023, the joint venture obtained a new $600.0$45.0 million, unsecured revolving credit facility, which replaced our previously existing $475.0 million revolving credit facility, and includesfive-year secured mortgage loan from a third party lender, with an accordion feature that allows for an additional $400.0 millioneffective fixed rate of borrowing capacity subject to additional lender commitments. Our new revolving credit facility7.29%. This loan is scheduled to mature in January 2022. Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-month periods.November 2028. The interest rate on the new facility at our current credit ratingsjoint venture is LIBOR plus 100 basis points and 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. The financial and other covenants under the new facility are similar to our previous credit facility. We expectexpected to incur approximately $3.5$0.8 million of debt issuance costs, which will be amortized along with certain existing unamortized debt issuance costs over the remaining term of our new revolving credit facility. We expect to record $0.1 million of loss on debt extinguishment. At October 18, 2017, we had $200.0 million outstanding under our new revolving credit facility and $0.6 million of outstanding letters of credit, which reduces the availability on the credit facility. As a result, the unused capacity of our new revolving credit facility at October 18, 2017 was $399.4 million.
We simultaneously modified our $200.0 million, five-year unsecured bank term loan, which was originally scheduled to mature in January 2019. The modified term loan is now scheduled to mature in November 2022 and the interest rate, based on current credit ratings, was reduced from LIBOR plus 120 basis points to LIBOR plus 110 basis points. We expect to incur approximately $1.1 million of debt issuance costs, which will be amortized along with certain existing unamortized debt issuance costs over the remaining term of the modified loan. We expect to record $0.4 million of loss on debt extinguishment.
We also simultaneously prepaid without penalty $125.0 million on a $350.0 million unsecured bank term loan which is scheduled to mature in June 2020. We expect to record $0.4 million of loss on debt extinguishment related to this prepayment.
On October 19, 2017,18, 2023, the Company declared a cash dividend of $0.44$0.50 per share of Common Stock, which is payable on December 5, 201712, 2023 to stockholders of record as of November 14, 2017.20, 2023.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a fully integrated office real estate investment trust ("REIT"(“REIT”) that owns, develops, acquires, leases and manages properties primarily in the best business districts (BBDs) of Atlanta, Greensboro, Memphis,Charlotte, Dallas, Nashville, Orlando, Pittsburgh, Raleigh, Richmond and Tampa. The Company conducts its activities through the Operating Partnership. The Operating Partnership is managed by the Company, its sole general partner. Additional information about us can be found on our website at www.highwoods.com. Information on our website is not part of this Quarterly Report.
You should read the following discussion and analysis in conjunction with the accompanying Consolidated Financial Statements and related notes contained elsewhere in this Quarterly Report.
Disclosure Regarding Forward-Looking Statements
Some of the information in this Quarterly Report may contain forward-looking statements. Such statements include in particular, statements about our plans, strategies and prospects under this section. You can identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue” or other similar words. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that our plans, intentions or expectations will be achieved. When considering such forward-looking statements, you should keep in mind the following important factors that could cause our actual results to differ materially from those contained in any forward-looking statement:statement, including the following:
•the financial condition of our customers could deteriorate;
•our assumptions regarding potential losses related to customer financial difficulties could prove to be incorrect;
•counterparties under our debt instruments, particularly our revolving credit facility, may attempt to avoid their obligations thereunder, which, if successful, would reduce our available liquidity;
•we may not be able to lease or re-lease second generation space, defined as previously occupied space that becomes available for lease, quickly or on as favorable terms as old leases;
•we may not be able to lease our newly constructed buildings as quickly or on as favorable terms as originally anticipated;
•we may not be able to complete development, acquisition, reinvestment, disposition or joint venture projects as quickly or on as favorable terms as anticipated;
•development activity by our competitors in our existing markets could result in an excessive supply relative to customer demand;
•our markets may suffer declines in economic and/or office employment growth;
•unanticipated increases in interest rates could increase our debt service costs;
•unanticipated increases in operating expenses could negatively impact our operating results;
•natural disasters and climate change could have an adverse impact on our cash flow and operating results;
•we may not be able to meet our liquidity requirements or obtain capital on favorable terms to fund our working capital needs and growth initiatives or repay or refinance outstanding debt upon maturity; and
•the Company could lose key executive officers.
This list of risks and uncertainties, however, is not intended to be exhaustive. You should also review the other cautionary statements we make in “Business –“Item 1A. Risk Factors” set forth herein and in our 20162022 Annual Report on Form 10-K. Given these uncertainties, you should not place undue reliance on forward-looking statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements to reflect any future events or circumstances or to reflect the occurrence of unanticipated events.
Executive Summary
We are in the work-placemaking business. We believe that in creating environments and experiences where the best and brightest can achieve together what they cannot apart, we can deliver greater value to our customers, their teammates and, in turn, our stockholders. Our simple strategy is to own and operate high-quality workplaces in the BBDs within our footprint, maintain a strong balance sheet to be opportunistic throughout economic cycles, employ a talented and dedicated team and communicate transparently with all stakeholders. We focus on owning and managing buildings in the most dynamic and vibrant BBDs. BBDs are highly-energized and amenitized workplace locations that enhance our customers’ ability to attract and retain talent. They are both urban and suburban. Providing the most talent-supportive workplace options in these environments is core to our work-placemaking strategy.
Our Strategic Plan focuses on:
investment strategy is to generate attractive and sustainable returns over the long term for our stockholders by developing, acquiring and owning a portfolio of high-quality, differentiated office buildings in the BBDs of our core markets;
improvingmarkets. A core component of this strategy is to continuously strengthen the operating resultsfinancial and operational performance, resiliency and long-term growth prospects of our properties through concentrated leasing, asset management, cost control and customer service efforts;
developing and acquiring office buildings in BBDs that improve the overall quality of ourexisting in-service portfolio and generate attractive returns over the long term for our stockholders;
disposing ofrecycle those properties that no longer considered to be core assets primarily due to location, age, quality and/or overall strategic fit; and
maintaining a balance sheet with ample liquidity to meet our funding needs and growth prospects.criteria.
Revenues
Our operating results depend heavily on successfully leasing and operating the office space in our portfolio. Economic growth and office employment levels in our core markets are important factors, among others, in predicting our future operating results.
The key components affecting our rental and other revenues are average occupancy, rental rates, cost recovery income, new developments placed in service, acquisitions and dispositions. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower or negative economic growth, when new vacancies tend to outpace our ability to lease space. Asset acquisitions, dispositions and new developments placed in service directly impact our rental revenues and could impact our average occupancy, depending upon the occupancy rate of the properties that are acquired, sold or placed in service. A further indicator of the predictability of future revenues is the expected lease expirations of our portfolio. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also concentrate our leasing efforts on renewing existing leases prior to expiration. For more information regarding our lease expirations, see "Properties“Item 2. Properties - Lease Expirations"Expirations” and “Item 1A. Risk Factors – Risks Related to our Operations – Potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, could materially and negatively impact the future demand for office space over the long-term” in our 20162022 Annual Report on Form 10-K. Occupancy in our office portfolio decreased from 92.9% at91.0% as of December 31, 20162022 to 92.2% at88.6% as of September 30, 2017 primarily due2023. We expect average occupancy for our office portfolio to scheduled expirations in Nashville and Atlanta.be approximately 88.0% to 89.0% for the remainder of 2023.
Whether or not our rental revenue tracks average occupancy proportionally depends upon whether GAAP rents under signed new and renewal leases are higher or lower than the GAAP rents under expiring leases. Annualized rental revenues from second generation leases expiring during any particular year are typically less than 15% of our total annual rental revenues. The following table sets forth information regarding second generation office leases signed during the third quarter of 20172023 (we define second generation office leases as leases with new customers and renewals of existing customers in office space that has been previously occupied under our ownership and leases with respect to vacant space in acquired buildings):
| | | New | | Renewal | | All Office | | New | | Renewal | | All Office |
Leased space (in rentable square feet) | 193,911 |
| | 910,118 |
| | 1,104,029 |
| Leased space (in rentable square feet) | 152,105 | | | 502,955 | | | 655,060 | |
Average term (in years - rentable square foot weighted) | 7.8 |
| | 4.1 |
| | 4.8 |
| Average term (in years - rentable square foot weighted) | 6.8 | | 4.8 | | 5.3 |
Base rents (per rentable square foot) (1) | $ | 28.23 |
| | $ | 25.71 |
| | $ | 26.15 |
| Base rents (per rentable square foot) (1) | $ | 35.76 | | | $ | 31.26 | | | $ | 32.31 | |
Rent concessions (per rentable square foot) (1) | (0.69 | ) | | (0.26 | ) | | (0.34 | ) | Rent concessions (per rentable square foot) (1) | (2.14) | | | (1.01) | | | (1.27) | |
GAAP rents (per rentable square foot) (1) | $ | 27.54 |
| | $ | 25.45 |
| | $ | 25.81 |
| GAAP rents (per rentable square foot) (1) | $ | 33.62 | | | $ | 30.25 | | | $ | 31.04 | |
Tenant improvements (per rentable square foot) (1) | $ | 3.99 |
| | $ | 2.32 |
| | $ | 2.61 |
| Tenant improvements (per rentable square foot) (1) | $ | 7.87 | | | $ | 1.86 | | | $ | 3.26 | |
Leasing commissions (per rentable square foot) (1) | $ | 1.04 |
| | $ | 0.78 |
| | $ | 0.83 |
| Leasing commissions (per rentable square foot) (1) | $ | 1.40 | | | $ | 0.74 | | | $ | 0.89 | |
__________
| |
(1) | (1) Weighted average per rentable square foot on an annual basis over the lease term. |
Annual combined GAAP rents for new and renewal leases signed in the third quarter were $25.81$31.04 per rentable square foot, or 11.3%,10.2% higher compared to previous leases in the same office spaces.
We strive to maintain a diverse, stable and creditworthy customer base. We have an internal guideline whereby customers that account for more than 3% of our revenues are periodically reviewed with the Company'sCompany’s Board of Directors. As of September 30, 2017, no customer2023, Bank of America (4.0%) and Asurion (3.5%) accounted for more than 3% of our cash revenues other than the Federal Government, which accounted for less than 6% of our cash revenues on an annualized basis.GAAP revenues.
Expenses
Our expenses primarily consist of rental property expenses, depreciation and amortization, general and administrative expenses and interest expense. From time to time, expenses also include impairments of real estate assets. Rental property expenses are expenses associated with our ownership and operation of rental properties and includeproperties. Some of these expenses that vary somewhat proportionately to occupancy and usage levels, such as janitorial services and utilities, andutilities. Other expenses that do not vary based on occupancy, such as property taxes and insurance. Depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year, unless we buy, place in service or sell assets, sinceSince our properties and related building and tenant improvement assets are depreciated on a straight-line basis over fixed lives.lives, depreciation and amortization, which is a non-cash expense associated with the ownership of real property, generally remains relatively consistent each year, unless we buy, place in service or sell assets. General and administrative expenses consist primarily of management and employee salaries and benefits, corporate overhead and short and long-term incentive compensation.
Net Operating Income
Whether or not we record increasing same property net operating income (“NOI”) in our same property portfolio typically depends upon our ability to garner higher rental revenues, whether from higher average occupancy, higher GAAP rents per rentable square foot or higher cost recovery income, that exceed any corresponding growth in operating expenses. Same property NOI from continuing operations was $3.3$1.1 million, or 3.2%0.8%, higherlower in the third quarter of 20172023 as compared to 20162022 primarily due to an increase in same property revenues of $4.2 million offset by an increase of $0.9 million in same property expenses.
In addition to the effect of same property NOI, whether or not NOI from continuing operations increases typically depends upon whether the NOI from our acquired properties and development properties placed in service exceeds the NOI from sold properties.property dispositions. NOI from continuing operations was $11.3$0.8 million, or 10.5%0.5%, higherlower in the third quarter of 20172023 as compared to 20162022 primarily due to lower same property NOI, NOI lost from property dispositions and the impactdeconsolidation of our Highwoods-Markel Associates, LLC joint venture (“Markel”), partially offset by the acquisition of SIX50 at Legacy Union and development properties placed in service and acquisitions, offset by NOI lost from sold properties not classified as discontinued operations.service.
Cash Flows
In calculating net cash related to operating activities, depreciation and amortization, which are non-cash expenses, are added back to net income. We have historically generated a positive amount of cash from operating activities. From period to period, cash flow from operations depends primarily upon changes in our net income, as discussed more fully below under “Results of Operations,” changes in receivables and payables and net additions or decreases in our overall portfolio.
Net cash related to investing activities generally relates to capitalized costs incurred for leasing and major building improvements and our acquisition, development, disposition and joint venture activity. During periods of significant net acquisition and/or development activity, our cash used in such investing activities will generally exceed cash provided by investing activities, which typically consists of cash received upon the sale of properties and distributions from our joint ventures.
Net cash related to financing activities generally relates to distributions, incurrence and repayment of debt, and issuances, repurchases or redemptions of Common Stock, Common Units and Preferred Stock. We use a significant amount of our cash to fund distributions. Whether or not we have increases in the outstanding balances of debt during a period depends generally upon the net effect of our acquisition, disposition, development and joint venture activity. We generally use our revolving credit facility for daily working capital purposes, which means that during any given period, in order to minimize interest expense, we may record significant repayments and borrowings under our revolving credit facility.
For a discussion regarding dividends and distributions, see “Liquidity and Capital Resources - Dividends and Distributions.”
Liquidity and Capital Resources
We intendOur plan is to continue to maintain a conservative and flexible balance sheet with accessample liquidity to multiple sourcesfund our operations and growth prospects. As of debtOctober 17, 2023, we had approximately $16 million of existing cash and equity capital and sufficient availability under$205.0 million drawn on our $750.0 million revolving credit facility, that allows uswhich is scheduled to capitalize on favorable developmentmature in March 2025 (but which can be extended for two additional six-month periods at our option). As of September 30, 2023, our leverage ratio, as measured by the ratio of our mortgages and acquisition opportunities as they arise.notes
payable and outstanding preferred stock to the undepreciated book value of our assets, was 41.9%, and there were 107.9 million diluted shares of Common Stock outstanding.
Rental and other revenues are our principal source of funds to meet our short-term liquidity requirements. Other sources of funds for short-term liquidity needs include available working capital and borrowings under our new revolving credit facility, which had $399.4$544.1 million of availability atas of October 18, 2017.17, 2023. Our short-term liquidity requirements primarily consist of operating
expenses, interest and principal amortization on our debt, distributions and capital expenditures, including building improvement costs, tenant improvement costs and lease commissions. Building improvements are capital costs to maintain or enhance existing buildings not typically related to a specific customer. Tenant improvements are the costs required to customize space for the specific needs of customers. We anticipate that our available cash and cash equivalents and cash provided by operating activities and planned financing activities, including borrowings under our revolving credit facility, will be adequate to meet our short-term liquidity requirements. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. The continuedContinued ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates.
We generally believe existing cash and rental and other revenues will continue to be sufficient to fund short-term liquidity needs such as funding operating and general and administrative expenses, paying interest expense, maintaining our existing quarterly dividend and funding existing portfolio capital expenditures, including building improvement costs, tenant improvement costs and lease commissions.
Our long-term liquidity uses generally consist of the retirement or refinancing of debt upon maturity, funding of building improvements, new building developments (including our proportionate share of joint venture developments) and land infrastructure projects and funding acquisitions of buildings and development land. Our expected future capital expenditures for started and/or committed new development projects were approximately $226 million at September 30, 2017. Additionally, we may, from time to time, retire some or all of our remaining outstanding Preferred Stockequity and/or unsecured debt securities through redemptions, open market repurchases, privately negotiated acquisitions or otherwise.
We expect to meet our long-term liquidity needs through a combination of:
•cash flowflows from operating activities;
•issuance of debt securities by the Operating Partnership;
•issuance of secured debt;
•bank term loans and loans;
•borrowings under our revolving credit facility;
the issuance of unsecured debt;
the issuance of secured debt;
the •issuance of equity securities by the Company or the Operating Partnership; and
•the disposition of non-core assets.
We have no debt scheduled to mature prior to 2025 other than our $200.0 million, two-year unsecured bank term loan that is scheduled to mature in October 2024 (but which can be extended for one additional year at our option). We generally expectbelieve we will be able to growsatisfy these obligations with existing cash, borrowings under our company on a leverage-neutral basis. At September 30, 2017, our leverage ratio, as measured byrevolving credit facility, new bank term loans, issuance of other unsecured debt, mortgage debt and/or proceeds from the ratiosale of our mortgages and notes payable and outstanding preferred stock to the undepreciated book value of our assets, was 34.7% and there were 106.2 million diluted shares of Common Stock outstanding.additional non-core assets.
Investment Activity
As noted above, a key tenet of our strategic plan is to continuously upgrade the quality of our office portfolio through acquisitions, dispositions and development. We generally seek to acquire and develop office buildings that improve the average quality of our overall portfolio and deliver consistent and sustainable value for our stockholders over the long-term. Whether or not an asset acquisition or new development results in higher per share net income or funds from operations ("FFO"(“FFO”) in any given period depends upon a number of factors, including whether the NOI for any such period exceeds the actual cost of capital used to finance the acquisition or development. Additionally, given the length of construction cycles, development projects are not placed in service until in some cases, several years after commencement.commencement in some cases. Sales of non-core assets could result in lower per share net income or FFO in any given period inif the eventreturn on the resulting use of proceeds does not exceed the capitalization rate on the sold properties.
Results of Operations
Deconsolidation of Markel
Markel is a joint venture in which we own a 50.0% interest that was consolidated as of December 31, 2022 because we controlled the major operating and financial policies of the entity. Effective January 1, 2023, the agreement governing the joint venture was modified to require the consent of both partners for major operating and financial policies of the entity. As a result, Markel was deconsolidated effective January 1, 2023, and this joint venture is now accounted for using the equity method of accounting.
Three Months Ended September 30, 20172023 and 20162022
Rental and Other Revenues
Rental and other revenues were $13.9relatively unchanged in the third quarter of 2023 as compared to 2022. Rental and other revenues increased due to the acquisition of SIX50 at Legacy Union and development properties placed in service, which increased rental and other revenues by $2.1 million and $1.1 million, respectively. These increases were offset by the deconsolidation of our Markel joint venture and lost revenue from property dispositions, which decreased rental and other revenues by $1.6 million and $1.4 million, respectively.
Operating Expenses
Rental property and other expenses were $0.9 million, or 8.4%1.3%, higher in the third quarter of 20172023 as compared to 20162022 primarily due to higher same property operating expenses, the acquisition of SIX50 at Legacy Union and development properties placed in service, which increased operating expenses by $1.6 million, $0.4 million and $0.2 million, respectively. Same property operating expenses were higher primarily due to higher contract services, property insurance, repairs and maintenance and utilities. These increases were partially offset by decreases in operating expenses from the deconsolidation of our Markel joint venture and property dispositions, which decreased operating expenses by $0.7 million and $0.5 million, respectively.
Depreciation and amortization was $1.7 million, or 2.3%, higher in the third quarter of 2023 as compared to 2022 primarily due to higher same property depreciation and amortization, the acquisition of SIX50 at Legacy Union and development properties placed in service, partially offset by property dispositions and the deconsolidation of our Markel joint venture.
We recorded an impairment charge of $1.5 million on a non-core land parcel in Pittsburgh in the third quarter of 2022. We recorded no such impairment in 2023.
General and administrative expenses were $0.7 million, or 7.4%, lower in the third quarter of 2023 as compared to 2022 primarily due to lower equity incentive compensation and office rent.
Interest Expense
Interest expense was $7.9 million, or 29.8%, higher in the third quarter of 2023 as compared to 2022 primarily due to higher average interest rates and higher average debt balances, partially offset by higher capitalized interest.
Other Income
Other income was $0.6 million higher in the third quarter of 2023 as compared to 2022 primarily due to interest income on the loan provided to the 2827 Peachtree joint venture.
Gains on Disposition of Property
Gains on disposition of property were $9.4 million lower in the third quarter of 2023 as compared to 2022.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates was $0.1 million lower in the third quarter of 2023 as compared to 2022 primarily due to expenses on Granite Park Six which was placed in service in the third quarter of 2023, partially offset by the deconsolidation of our Markel joint venture and the acquisition of McKinney and Olive.
Earnings Per Common Share - Diluted
Diluted earnings per common share was $0.15 lower in the third quarter of 2023 as compared to 2022 due to a decrease in net income for the reasons discussed above.
Nine Months Ended September 30, 2023 and 2022
Rental and Other Revenues
Rental and other revenues were $9.9 million, or 1.6%, higher in the nine months ended September 30, 2023 as compared to 2022 primarily due to the acquisition of SIX50 at Legacy Union, higher same property revenues and acquisitions,development properties placed in service, which increased rental and other revenues by $7.9$8.9 million, $4.2$7.0 million and $1.5$4.7 million, respectively. Same property rental and other revenues were higher primarily due to higher average GAAP rents per rentable square foot, higher termination fees and higher cost recovery income.and parking income and lower credit losses, partially offset by a decrease in average occupancy and lower termination fees. These increases were partlypartially offset by lost revenue of $0.6 million from property dispositions.dispositions and the deconsolidation of our Markel joint venture, which decreased rental and other revenues by $6.0 million and $4.4 million, respectively.
Operating Expenses
Rental property and other expenses were $2.6$9.1 million, or 4.5%4.8%, higher in the third quarter of 2017nine months ended September 30, 2023 as compared to 20162022 primarily due to higher same property operating expenses, the acquisition of SIX50 at Legacy Union, carry costs for acquired land parcels and development properties placed in service, higher same property operating expenses and acquisitions, which increased operating expenses by $1.5$10.2 million, $0.9$1.9 million, $0.8 million and $0.4$0.5 million, respectively. Same property operating expenses were higher primarily due to higher property taxes, contract services, utilities, repairs and maintenance, property insurance and property insurance, partly offset by lower utilities.taxes. These increases were partlypartially offset by a $0.3 million decreasedecreases in operating expenses from property dispositions.dispositions and the deconsolidation of our Markel joint venture, which decreased operating expenses by $2.3 million and $1.7 million, respectively.
Depreciation and amortization was $4.1$8.0 million, or 7.7%, higher in the third quarter of 2017 as compared to 2016 primarily due to development properties placed in service and acquisitions, partly offset by property dispositions.
We recorded aggregate impairments of real estate assets of $1.4 million in the third quarter of 2017, which resulted from a change in market-based inputs and our assumptions about the use of the assets.
General and administrative expenses were $0.6 million, or 6.2%, lower in the third quarter of 2017 as compared to 2016 primarily due to lower acquisition costs, partly offset by higher company-wide base salaries and benefits.
Interest Expense
Interest expense was $1.4 million, or 7.4%, lower in the third quarter of 2017 as compared to 2016 primarily due to lower average debt balances and lower average interest rates, partly offset by lower capitalized interest.
Other Income
Other income was $0.3 million, or 33.0%, lower in the third quarter of 2017 as compared to 2016 primarily due to the repayments of mortgages receivable in 2016.
Gains on Disposition of Property
Gains on disposition of property were $15.9 million higher in the third quarter of 2017 as compared to 2016 due to the net effect of the disposition activity in such periods.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates was $2.2 million higher in the third quarter of 2017 as compared to 2016 primarily due to our share of the net effect of the disposition activity by certain unconsolidated affiliates in such periods, partly offset by lower occupancy in 2017.
Earnings Per Common Share - Diluted
Diluted earnings per common share was $0.23 higher in the third quarter of 2017 as compared to 2016 due to an increase in net income for the reasons discussed above, partly offset by an increase in the weighted average Common Shares outstanding.
Nine Months Ended September 30, 2017 and 2016
Rental and Other Revenues
Rental and other revenues were $28.9 million, or 5.8%3.7%, higher in the nine months ended September 30, 20172023 as compared to 20162022 primarily due to higher same property depreciation and amortization, the acquisition of SIX50 at Legacy Union and development properties placed in service, higher samepartially offset by property revenuesdispositions and acquisitions, which increased rentalthe deconsolidation of our Markel joint venture.
We recorded an impairment charge of $36.5 million in the nine months ended September 30, 2022, primarily to lower the carrying amount of EQT Plaza to its estimated fair value less cost to sell. EQT Plaza is a 616,000 square foot office building located in the heart of Pittsburgh’s CBD. EQT Corporation’s lease of 317,000 square feet at EQT Plaza is scheduled to expire in September 2024. There are no assurances that EQT Corporation will renew all or any of its space upon expiration of its current lease. We recorded no such impairment in 2023.
General and other revenues by $17.7administrative expenses were $2.1 million, $8.0 million and $4.4 million, respectively. Same property rental and other revenues were higheror 6.3%, lower in the nine months ended September 30, 2023 as compared to 2022 primarily due to higher average GAAP rents per rentable square footlower equity incentive compensation and higher parking income, partlyoffice rent, partially offset by lower termination fees. These increases were partlygains on deferred compensation plan investments (which is fully offset by lost revenue of $1.5 million from property dispositions.a corresponding increase in other income).
Operating ExpensesInterest Expense
Rental property and other expenses were $3.8Interest expense was $25.6 million, or 2.2%33.8%, higher in the nine months ended September 30, 20172023 as compared to 20162022 primarily due to development properties placed in servicehigher average interest rates and acquisitions, which increased operating expenses by $3.3 million and $1.1 million, respectively. These increases were partlyhigher average debt balances, partially offset by a $0.8higher capitalized interest.
Other Income
Other income was $2.5 million decrease in operating expenses
from property dispositions. Same property operating expenses were relatively unchanged in the nine months ended September 30, 2017 as compared to 2016.
Depreciation and amortization was $7.2 million, or 4.5%, higher in the nine months ended September 30, 20172023 as compared to 20162022 primarily due to development properties placed in service, acquisitionsdividend income from short-term preferred equity contributed to the McKinney and accelerated depreciation relatedOlive joint venture, interest income on the loan provided to properties that are expected to be demolished, partlythe 2827 Peachtree joint venture and gains on deferred compensation plan investments (which is fully offset by property dispositions.
We recorded aggregate impairments of real estate assets of $1.4 milliona corresponding increase in the nine months ended September 30, 2017, which resulted from a change in market-based inputs and our assumptions about the use of the assets.
Generalgeneral and administrative expenses were $0.5 million, or 1.6%, higher in the nine months ended September 30, 2017 as compared to 2016 primarily due to higher company-wide base salaries, benefits and incentive compensation, partly offset by lower acquisition costs.expenses).
Interest Expense
Interest expense was $7.5 million, or 12.8%, lower in the nine months ended September 30, 2017 as compared to 2016 primarily due to lower average debt balances, lower average interest rates and higher capitalized interest.
Other Income
Other income was $0.7 million, or 39.7%, higher in the nine months ended September 30, 2017 as compared to 2016 primarily due to gains on debt extinguishment in 2017.
Gains on Disposition of Property and Net
Gains on Dispositiondisposition of Discontinued Operations
Total gainsproperty were $403.5$43.7 million lower in the nine months ended September 30, 20172023 as compared to 2016 due2022.
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 the sales of substantially all ofadjusting our wholly-owned Country Club Plaza assetsretained interest in Kansas City (which we referMarkel to as the “Plaza assets”) in 2016.fair value.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates was $1.7$0.8 million or 34.9%, higher in the nine months ended September 30, 20172023 as compared to 20162022 primarily due to the deconsolidation of our shareMarkel joint venture and the acquisition of the net effect of the disposition activity by certain unconsolidated affiliates in such periods, partlyMcKinney and Olive, partially offset by lower occupancyexpenses on Granite Park Six which was placed in 2017.service in the third quarter of 2023.
Income From Discontinued OperationsEarnings Per Common Share - Diluted
Income from discontinued operationsDiluted earnings per common share was $4.1 million$0.20 lower in the nine months ended September 30, 20172023 as compared to 20162022 due to the sales of the Plaza assetsa decrease in 2016.
Earnings Per Common Share - Diluted
Diluted earnings per common share was $3.85 lower in the nine months ended September 30, 2017 as compared to 2016 due to gains from the sales of the Plaza assets in 2016 and an increase in the weighted average Common Shares outstanding, partly offset by increases innet income from continuing operations for the reasons discussed above.
Liquidity and Capital Resources
Statements of Cash Flows
We report and analyze our cash flows based on operating activities, investing activities and financing activities. The following table sets forth the changes in the Company’s cash flows ($ in(in thousands):
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | |
| 2023 | | 2022 | | Change |
Net Cash Provided By Operating Activities | $ | 284,171 | | | $ | 319,879 | | | $ | (35,708) | |
Net Cash Used In Investing Activities | (130,967) | | | (341,593) | | | 210,626 | |
Net Cash Provided By/(Used In) Financing Activities | (152,213) | | | 19,609 | | | (171,822) | |
Total Cash Flows | $ | 991 | | | $ | (2,105) | | | $ | 3,096 | |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, | | |
| 2017 | | 2016 | | Change |
Net Cash Provided By Operating Activities | $ | 270,211 |
| | $ | 232,385 |
| | $ | 37,826 |
|
Net Cash Provided By/(Used In) Investing Activities | (176,565 | ) | | 305,084 |
| | (481,649 | ) |
Net Cash Used In Financing Activities | (138,272 | ) | | (536,118 | ) | | 397,846 |
|
Total Cash Flows | $ | (44,626 | ) | | $ | 1,351 |
| | $ | (45,977 | ) |
The increasechange in net cash provided by operating activities in the nine months ended September 30, 20172023 as compared to 20162022 was primarily due to higher interest expense, property dispositions and changes in operating assets and liabilities, partially offset by net cash from the operations of SIX50 at Legacy Union acquired in the prior year and development properties placed in service, same propertiesservice.
The change in net cash used in investing activities in the nine months ended September 30, 2023 as compared to 2022 was primarily due to lower acquisition activity, the redemption of our short-term preferred equity investment in the McKinney and acquisitions,Olive joint venture and lower investments in tenant improvements, partially offset by lower net proceeds from disposition activity, higher investments in the timing of cash paid for operating expenses2827 Peachtree, 23Springs and the settlement of cash flow hedges.Midtown East joint ventures and higher investments in building improvements.
The change in net cash provided by/(used in) investing activities in the nine months ended September 30, 2017 as compared to 2016 was primarily due to the net proceeds from the sales of the Plaza assets in 2016, partly offset by higher acquisition activity in 2016.
The decrease in net cash used in financing activities in the nine months ended September 30, 20172023 as compared to 20162022 was primarily due to higherlower net debt borrowings in 2017, partly offset by the payment of a special dividend declared in the fourth quarter of 2016 and lower proceeds from the issuance of Common Stock in 2017.borrowings.
Capitalization
The following table sets forth the Company’s capitalization (in thousands, except per share amounts):
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| | | |
Mortgages and notes payable, net, at recorded book value | $ | 3,212,185 | | | $ | 3,197,215 | |
| | | |
Preferred Stock, at liquidation value | $ | 28,811 | | | $ | 28,821 | |
Common Stock outstanding | 105,693 | | | 105,211 | |
Common Units outstanding (not owned by the Company) | 2,157 | | | 2,358 | |
Per share stock price at period end | $ | 20.61 | | | $ | 27.98 | |
Market value of Common Stock and Common Units | $ | 2,222,789 | | | $ | 3,009,781 | |
Total capitalization | $ | 5,463,785 | | | $ | 6,235,817 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Mortgages and notes payable, net, at recorded book value | $ | 1,966,398 |
| | $ | 1,948,047 |
|
Preferred Stock, at liquidation value | $ | 28,892 |
| | $ | 28,920 |
|
Common Stock outstanding | 103,249 |
| | 101,666 |
|
Common Units outstanding (not owned by the Company) | 2,831 |
| | 2,839 |
|
Per share stock price at period end | $ | 52.09 |
| | $ | 51.01 |
|
Market value of Common Stock and Common Units | $ | 5,525,707 |
| | $ | 5,330,800 |
|
Total capitalization | $ | 7,520,997 |
| | $ | 7,307,767 |
|
AtAs of September 30, 2017,2023, our mortgages and notes payable and outstanding preferred stock represented 26.5%59.3% of our total capitalization and 34.7%41.9% of the undepreciated book value of our assets. See also "Executive“Executive Summary - Liquidity and Capital Resources."”
Our mortgages and notes payable as of September 30, 20172023 consisted of $99.4$677.8 million of secured indebtedness with a weighted average interest rate of 4.0%4.23% and $1,875.2$2,549.5 million of unsecured indebtedness with a weighted average interest rate of 3.54%4.39%. The secured indebtedness was collateralized by real estate assets with an aggregate undepreciated book value of $147.7 million.$1,170.7 million. As of September 30, 2017, $557.02023, $755.0 million of our debt does not bearbears interest at fixed rates or is not protected by interest rate hedge contracts.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“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"estimates” in our 20162022 Annual Report on Form 10-K.10-K
During the third quarter of 2017, we sold a total of 12 buildings for an aggregate sale price of $78.0 million (before closing credits to buyer of $2.5 million) and recorded aggregate gains on disposition of property of $19.8 million.
During the third quarter of 2017, we recorded aggregate impairments of real estate assets of $1.4 million, which resulted from a change in market-based inputs and our assumptions about the use of the assets.
As of September 30, 2017,2023, we were developing 0.70.8 million rentable square feet of office properties. The following table summarizes these announced and in-process office developments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Market | | Own % | | Consolidated (Y/N) | | Rentable Square Feet | | Anticipated Total Investment (1) | | Investment as of September 30, 2023 | | Pre Leased % | | Estimated Completion | | Estimated Stabilization |
| | | | | | | | | | ($ in thousands) | | | | | | |
23Springs | | Dallas | | 50.0 | % | | N | | 642,000 | | | $ | 460,000 | | | $ | 123,181 | | | 17.1 | % | | 1Q 25 | | 1Q 28 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Midtown East | | Tampa | | 50.0 | % | | N | | 143,000 | | | 83,000 | | | 21,785 | | | 16.1 | | | 1Q 25 | | 2Q 26 |
| | | | | | | | | | | | | | | | | | |
Four Morrocroft (2) | | Charlotte | | 100.0 | % | | Y | | 18,000 | | | 12,000 | | | 6,678 | | | 100.0 | | | 2Q 24 | | 2Q 24 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | 803,000 | | | $ | 555,000 | | | $ | 151,644 | | | 18.8 | % | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
Property | | Market | | Rentable Square Feet | | Anticipated Total Investment (1) | | Investment As Of September 30, 2017 (1) | | Pre-Leased | | Estimated Completion | | Estimated Stabilization |
| | | | | | ($ in thousands) | | | | | | |
Virginia Urology | | Richmond | | 87,000 |
| | $ | 29,140 |
| | $ | 11,036 |
| | 100.0 | % | | 3Q18 | | 3Q18 |
751 Corporate Center | | Raleigh | | 89,700 |
| | 21,850 |
| | 5,352 |
| | 35.3 |
| | 4Q18 | | 4Q20 |
MetLife III | | Raleigh | | 219,000 |
| | 64,500 |
| | 8,911 |
| | 100.0 |
| | 2Q19 | | 2Q21 |
Virginia Springs I (2) | | Nashville | | 109,000 |
| | 34,300 |
| | 5,120 |
| | 33.8 |
| | 2Q19 | | 3Q20 |
Mars Petcare - Ovation | | Nashville | | 223,700 |
| | 96,200 |
| | 12,234 |
| | 100.0 |
| | 3Q19 | | 3Q19 |
| | | | 728,400 |
| | $ | 245,990 |
| | $ | 42,653 |
| | 82.1 | % | | | | |
____________________(1)Includes estimated lease up costs for tenant improvements and lease commissions until the property has reached stabilization.
| |
(1) | Includes deferred lease commissions which are classified in deferred leasing costs on our Consolidated Balance Sheets. |
| |
(2) | Recorded on our Consolidated Balance Sheets in land held for development, not development-in-process. |
(2)Investment includes deferred lease commissions which are classified in deferred leasing costs on our Consolidated Balance Sheet.
Financing Activity
During the first quarter of 2017,2023, we entered into separate equity distribution agreements with each of Wells Fargo Securities, LLC, Robert W. Baird & Co. Incorporated, BB&T Capital Markets, a division of BB&TBofA Securities, Inc., BTIG, LLC, Jefferies LLC, J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BTIG,Regions Securities LLC, Capital OneTD Securities Inc., Comerica(USA) LLC and Truist Securities, Inc., Fifth Third Securities, Inc., Jefferies LLC, Morgan Stanley & Co. LLC, MUFG Securities Americas Inc. and RBC Capital Markets, LLC. 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.firms (which may include block trades). During the third quarter of 2023, there were no shares of common stock issued under these agreements.
On October 18, 2017, we entered into a new $600.0Our $750.0 million unsecured revolving credit facility which replaced our previously existing $475.0 million revolving credit facility,is scheduled to mature in March 2025 and includes an accordion feature that currently allows for an additional $400.0$200.0 million of borrowing capacity subject to additional lender commitments. Our new revolving credit facility is scheduled to mature in January 2022. Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-month periods. The interest rate on the newour revolving credit facility at our current credit ratings is LIBORSOFR plus 100a related spread adjustment of 10 basis points and thea 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. The financial and other covenants underWe may be entitled to a temporary reduction in the new facility are similarinterest rate of one basis point provided we meet certain sustainability goals with respect to our previous credit facility. We expect to incur approximately $3.5 millionthe ongoing reduction of debt issuance costs, which will be amortized along with certain existing unamortized debt issuance costs over the remaining term of our new revolving credit facility. We expect to record $0.1 million of loss on debt extinguishment. At October 18, 2017, we had $200.0greenhouse gas emissions. There was $205.0 million outstanding under our new revolving credit facility as of both September 30, 2023 and $0.6October 17, 2023. As of both September 30, 2023 and October 17, 2023, we had $0.9 million of outstanding letters of credit, which reduces the availability on theour revolving credit facility. As a result, the unused capacity of our new revolving credit facility atas of both September 30, 2023 and October 18, 201717, 2023 was $399.4$544.1 million.
We simultaneously modified our $200.0own an 80.0% interest in the Midtown West joint venture, which is consolidated. On October 23, 2023, the joint venture obtained a $45.0 million, five-year unsecured bank termsecured mortgage loan which was originally scheduled to mature in January 2019. The modified termfrom a third party lender, with an effective fixed rate of 7.29%. This loan is now scheduled to mature in November 2022 and the interest rate, based on current credit ratings, was reduced from LIBOR plus 120 basis points2028. The joint venture is expected to LIBOR plus 110 basis points. We expect to incur
approximately $1.1 $0.8 million of debt issuance costs, which will be amortized along with certain existing unamortized debt issuance costs over the remaining term of the modified loan. We expect to record $0.4 million of loss on debt extinguishment.
We also simultaneously prepaid without penalty $125.0 million on a $350.0 million unsecured bank term loan which is scheduled to mature in June 2020. We expect to record $0.4 million of loss on debt extinguishment related to this prepayment.
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 assure youprovide 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 theour revolving credit facility, the lenders having at least 51.0% of the total commitments under theour 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 $30.0$35.0 million with respect to other loans in some circumstances.
The indenture that governs the Operating Partnership’s outstanding unsecured 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'sCompany’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"(“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'sCompany’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 5. Market for Registrant's Common Equity, Related Stockholder Matters“Item 7. Management’s Discussion and Issuer PurchasesAnalysis of Equity Securities"Financial Condition and Results of Operations - Liquidity and Capital Resources - Dividends and Distributions” in our 20162022 Annual Report on Form 10-K.
During the third quarter of 2017, the Company declared and paid a cash dividend of $0.44 per share of Common Stock.
On October 19, 2017,18, 2023, the Company declared a cash dividend of $0.44$0.50 per share of Common Stock, which is payable on December 5, 201712, 2023 to stockholders of record as of November 14, 2017.20, 2023.
During the third quarter of 2023, 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 expectedavailable 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 the $200.0 million principal amount of unsecured notes due April 15, 2018.building improvement costs, tenant improvement costs and lease commissions.
We had $4.9$16.9 million of cash and cash equivalents as of September 30, 2017.2023. The unused capacity of our new revolving credit facility atas of both September 30, 2023 and October 18, 201717, 2023 was $399.4$544.1 million, excluding an accordion feature that allows for an additional $400.0$200.0 million of borrowing capacity subject to additional lender commitments.
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.
The Company from time to time enters into equity distribution agreements with a variety of firms pursuant to which the Company may offer and sell 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 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).
To date in 2017,During the remainder of 2023, we have sold $105.7expect to sell up to $150 million of properties (including our $14.7 million share of properties sold by certain unconsolidated affiliates) no longer considered to be core assets due to location, age, quality and/or overall strategic fit and expect to sell an additional $44 million of such properties during the remainder of 2017.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.
We generally intend to fund the growth of our company, including the $197.6 million of contractual commitments through September 30, 2018 related to our development activity, on a leverage-neutral basis. At September 30, 2017, our leverage ratio was 34.7%See also “Executive Summary - Liquidity and there were 106.2 million diluted shares of Common Stock outstanding.Capital Resources.”
Critical Accounting Estimates
There were no changes made by management to the critical accounting policies in the nine months endedSeptember 30, 2017.2023. For a description of our critical accounting estimates, see “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” in our 20162022 Annual Report on Form 10-K.
Non-GAAP Information
The Company believes that FFO, FFO available for common stockholders and FFO available for common stockholders per share are metrics that are beneficial to management and investors and are important indicators of the performance of any equity REIT. Because these FFO calculations exclude such factors as depreciation, amortization and impairments of real estate assets and gains or losses from sales of operating real estate assets, which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful life estimates, they facilitate comparisons of operating performance between periods and between other REITs. Management believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, management believes the use of FFO, FFO available for common stockholders and FFO available for common stockholders per share, together with the required GAAP presentations, provides a more complete understanding of the Company'sCompany’s performance relative to its competitors and a more informed and appropriate basis on which to make decisions involving operating, financing and investing activities.
FFO, FFO available for common stockholders and FFO available for common stockholders per share are non-GAAP financial measures and therefore do not represent net income or net income per share as defined by GAAP. Net income and net income per share as defined by GAAP are the most relevant measures in determining the Company'sCompany’s operating performance because these FFO measures include adjustments that investors may deem subjective, such as adding back expenses such as depreciation, amortization and impairments. Furthermore, FFO available for common stockholders per share does not depict the amount that accrues directly to the stockholders'stockholders’ benefit. Accordingly, FFO, FFO available for common stockholders and FFO available for common stockholders per share should never be considered as alternatives to net income, net income available for common stockholders, or net income available for common stockholders per share as indicators of the Company'sCompany’s operating performance.
The Company'sCompany’s presentation of FFO is consistent with FFO as defined by the National Association of Real Estate Investment Trusts, which is calculated as follows:
•Net income/(loss) computed in accordance with GAAP;
•Less net income, or plus net loss, attributable to noncontrolling interests in consolidated affiliates;
•Plus depreciation and amortization of depreciable operating properties;
•Less gains, or plus losses, from sales of depreciable operating properties, plus impairments on depreciable operating properties and excluding items that are classified as extraordinary items under GAAP;
•Plus or minus our share of adjustments, including depreciation and amortization of depreciable operating properties, for unconsolidated joint venture investments (to reflect funds from operations on the same basis); and
•Plus or minus adjustments for depreciation and amortization and gains/(losses) on sales of depreciable operating properties, plus impairments on depreciable operating properties, and noncontrolling interests in consolidated affiliates related to discontinued operations.
In calculating FFO, the Company includes net income attributable to noncontrolling interests in the Operating Partnership, which the Company believes is consistent with standard industry practice for REITs that operate through an UPREIT structure. The Company believes that it is important to present FFO on an as-converted basis since all of the Common Units not owned by the Company are redeemable on a one-for-one basis for shares of its Common Stock.
The following table sets forth the Company'sCompany’s FFO, FFO available for common stockholders and FFO available for common stockholders per share ($ in(in thousands, except per share amounts):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
Funds from operations: | | | | | | | | Funds from operations: | | | | | | | |
Net income | $ | 59,549 |
| | $ | 33,840 |
| | $ | 132,588 |
| | $ | 514,103 |
| Net income | $ | 23,171 | | | $ | 40,110 | | | $ | 111,995 | | | $ | 134,815 | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | (315 | ) | | (319 | ) | | (914 | ) | | (941 | ) | |
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | | Net (income)/loss attributable to noncontrolling interests in consolidated affiliates | 5 | | | (357) | | | 488 | | | (880) | |
Depreciation and amortization of real estate assets | 56,271 |
| | 52,303 |
| | 166,862 |
| | 159,780 |
| Depreciation and amortization of real estate assets | 74,048 | | | 72,323 | | | 218,423 | | | 210,362 | |
Impairments of depreciable properties | | Impairments of depreciable properties | — | | | — | | | — | | | 35,000 | |
(Gains) on disposition of depreciable properties | (19,849 | ) | | — |
| | (25,181 | ) | | (8,915 | ) | (Gains) on disposition of depreciable properties | — | | | — | | | (19,368) | | | (47,807) | |
(Gain) on deconsolidation of affiliate | | (Gain) on deconsolidation of affiliate | — | | | — | | | (11,778) | | | — | |
| Unconsolidated affiliates: | | | | | | | | Unconsolidated affiliates: | |
Depreciation and amortization of real estate assets | 529 |
| | 736 |
| | 1,923 |
| | 2,227 |
| Depreciation and amortization of real estate assets | 3,209 | | | 181 | | | 8,655 | | | 548 | |
(Gains) on disposition of depreciable properties | (4,617 | ) | | (1,842 | ) | | (4,617 | ) | | (2,173 | ) | |
Discontinued operations: | | | | | | | | |
(Gains) on disposition of depreciable properties | — |
| | — |
| | — |
| | (414,496 | ) | |
| Funds from operations | 91,568 |
| | 84,718 |
| | 270,661 |
| | 249,585 |
| Funds from operations | 100,433 | | | 112,257 | | | 308,415 | | | 332,038 | |
Dividends on Preferred Stock | (623 | ) | | (624 | ) | | (1,869 | ) | | (1,877 | ) | Dividends on Preferred Stock | (622) | | | (621) | | | (1,864) | | | (1,864) | |
| Funds from operations available for common stockholders | $ | 90,945 |
| | $ | 84,094 |
| | $ | 268,792 |
| | $ | 247,708 |
| Funds from operations available for common stockholders | $ | 99,811 | | | $ | 111,636 | | | $ | 306,551 | | | $ | 330,174 | |
Funds from operations available for common stockholders per share | $ | 0.86 |
| | $ | 0.82 |
| | $ | 2.55 |
| | $ | 2.46 |
| Funds from operations available for common stockholders per share | $ | 0.93 | | | $ | 1.04 | | | $ | 2.84 | | | $ | 3.07 | |
Weighted average shares outstanding (1) | 106,145 |
| | 101,939 |
| | 105,402 |
| | 100,645 |
| Weighted average shares outstanding (1) | 107,832 | | | 107,601 | | | 107,762 | | | 107,570 | |
__________
| |
(1) | Includes assumed conversion of all potentially dilutive Common Stock equivalents. |
(1)Includes assumed conversion of all potentially dilutive Common Stock equivalents.
In addition, the Company believes NOI from continuing operations and same property NOI are useful supplemental measures of the Company’s property operating performance because such metrics provide a performance measure of the revenues and expenses directly involved in owning real estate assets and a perspective not immediately apparent from net income or FFO. The Company defines NOI as rental and other revenues from continuing operations, less rental property and other expenses from continuing operations.expenses. The Company defines cash NOI as NOI less lease termination fees, straight-line rent, amortization of lease incentives and amortization of acquired above and below market leases. Other REITs may use different methodologies to calculate NOI, same property NOI and cash NOI.
As of September 30, 2017,2023, our same property portfolio consisted of 212155 in-service properties encompassing 28.226.7 million rentable square feet that were wholly owned during the entirety of the periods presented (from January 1, 20162022 to September 30, 2017)2023). As of December 31, 2016,2022, our same property portfolio consisted of 217148 in-service properties encompassing 26.724.4 million rentable square feet that were wholly owned during the entirety of the periods presented (from January 1, 20152021 to December 31, 2016)2022). The change in our same property portfolio was due to the addition of fourseven acquired properties encompassing 1.6 million rentable square feet acquired during 20152021 and fourthree newly developed properties encompassing 0.80.9 million rentable square feet placed in service during 2015. These additions were2021, offset by the removal of 13three properties encompassing 0.80.3 million rentable square feet that were sold during 2017.2023.
Rental and other revenues related to properties not in our same property portfolio were $17.5$5.5 million and $7.8$5.9 million for the three months ended September 30, 20172023 and 2016,2022, respectively, and $42.9$19.1 million and $22.0$16.2 million for the nine months endedSeptember 30, 20172023, and 2016,2022, respectively. Rental property and other expenses related to properties not in our same property portfolio were $4.3$1.4 million and $2.6$2.2 million for the three months ended September 30, 20172023 and 2016,2022, respectively, and $11.0$5.9 million and $7.3$7.0 million for the nine months endedSeptember 30, 20172023 and 2016,2022, respectively.
The following table sets forth the Company’s NOI, same property NOI and same property NOI:cash NOI (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 23,171 | | | $ | 40,110 | | | $ | 111,995 | | | $ | 134,815 | |
Equity in earnings of unconsolidated affiliates | (400) | | | (457) | | | (1,902) | | | (1,083) | |
Gain on deconsolidation of affiliate | — | | | — | | | (11,778) | | | — | |
Gains on disposition of property | — | | | (9,402) | | | (19,818) | | | (63,546) | |
Other income | (754) | | | (138) | | | (3,082) | | | (621) | |
Interest expense | 34,247 | | | 26,392 | | | 101,408 | | | 75,812 | |
General and administrative expenses | 8,873 | | | 9,586 | | | 30,668 | | | 32,733 | |
Impairments of real estate assets | — | | | 1,515 | | | — | | | 36,515 | |
Depreciation and amortization | 74,765 | | | 73,057 | | | 220,416 | | | 212,466 | |
Net operating income | 139,902 | | | 140,663 | | | 427,907 | | | 427,091 | |
Non same property and other net operating income | (4,009) | | | (3,712) | | | (13,254) | | | (9,213) | |
Same property net operating income | $ | 135,893 | | | $ | 136,951 | | | $ | 414,653 | | | $ | 417,878 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Same property net operating income | $ | 135,893 | | | $ | 136,951 | | | $ | 414,653 | | | $ | 417,878 | |
Lease termination fees, straight-line rent and other non-cash adjustments | (3,294) | | | (6,892) | | | (13,008) | | | (18,883) | |
Same property cash net operating income | $ | 132,599 | | | $ | 130,059 | | | $ | 401,645 | | | $ | 398,995 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates | $ | 34,653 |
| | $ | 27,130 |
| | $ | 100,650 |
| | $ | 76,340 |
|
Other income | (558 | ) | | (833 | ) | | (2,632 | ) | | (1,884 | ) |
Interest expense | 17,191 |
| | 18,566 |
| | 51,208 |
| | 58,756 |
|
General and administrative expenses | 9,247 |
| | 9,863 |
| | 29,787 |
| | 29,327 |
|
Impairments of real estate assets | 1,445 |
| | — |
| | 1,445 |
| | — |
|
Depreciation and amortization | 56,973 |
| | 52,923 |
| | 168,934 |
| | 161,734 |
|
Net operating income from continuing operations | 118,951 |
| | 107,649 |
| | 349,392 |
| | 324,273 |
|
Less – non same property and other net operating income | (13,187 | ) | | (5,203 | ) | | (31,902 | ) | | (14,678 | ) |
Same property net operating income from continuing operations | $ | 105,764 |
| | $ | 102,446 |
| | $ | 317,490 |
| | $ | 309,595 |
|
| | | | | | | |
Same property net operating income from continuing operations | $ | 105,764 |
| | $ | 102,446 |
| | $ | 317,490 |
| | $ | 309,595 |
|
Less – lease termination fees, straight-line rent and other non-cash adjustments | (3,373 | ) | | (3,454 | ) | | (10,924 | ) | | (16,502 | ) |
Same property cash net operating income from continuing operations | $ | 102,391 |
| | $ | 98,992 |
| | $ | 306,566 |
| | $ | 293,093 |
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding our
The effects of potential changes in interest rates are discussed below. Our market risk discussion includes “forward-looking statements” and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in interest rates. Actual future results may differ materially from those presented. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and the Notes to Consolidated Financial Statements for a description of our accounting policies and other information related to these financial instruments.
We borrow funds at a combination of fixed and variable rates. Borrowings under our revolving credit facility and bank term loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings, typically bears interest at fixed rates. Our interest rate risk management objectives are to limit generally the impact of interest rate changes on earnings and cash flows and lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to existing and prospective debt instruments. We generally do not hold or issue these derivative contracts for trading or speculative purposes.
As of September 30, 2023, we had $2,472.3 million principal amount of fixed rate debt outstanding, a $194.7 million increase as compared to December 31, 2022. The estimated aggregate fair market value of this debt was $2,054.6 million. If interest rates had been 100 basis points higher, the aggregate fair market value of our fixed rate debt would have been $99.2 million lower. If interest rates had been 100 basis points lower, the aggregate fair market value of our fixed rate debt would have been $105.6 million higher.
As of September 30, 2023, we had $755.0 million of variable rate debt outstanding, a $181.0 million decrease as compared to December 31, 2022. If the weighted average interest rate on this variable rate debt had been 100 basis points higher or lower, the annual interest expense as of JuneSeptember 30, 2017, see "Quantitative and Qualitative Disclosures About Market Risk" in our Quarterly Report on Form 10-Q for the second quarter of 2017.2023 would increase or decrease by $7.6 million.
ITEM 4. CONTROLS AND PROCEDURES
SEC rules require us to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our annual and periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC'sSEC’s rules and forms, and that such information is accumulated and communicated to our management to allow for timely decisions regarding required disclosure. The Company'sCompany’s CEO and CFO have concluded that the disclosure controls and procedures of the Company and the Operating Partnership were each effective at the endas of the period covered by this Quarterly Report.September 30, 2023.
SEC rules also require us to establish and maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There were no changes in internal control over financial reporting during the three months endedSeptember 30, 20172023 that materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting. There were also no changes in internal control over financial reporting during the three months endedSeptember 30, 20172023 that materially affected, or are reasonably likely to materially affect, the Operating Partnership'sPartnership’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the third quarter of 2017,2023, the Company issued an aggregate of 2,000193,907 shares of Common Stock to holders of Common Units in the Operating Partnership upon the redemption of a like number of Common Units in private offerings exempt from the registration requirements pursuant to Section 4(2) of the Securities Act. Each of the holders of Common Units was an accredited investor under Rule 501 of the Securities Act. The resale of such shares was registered by the Company under the Securities Act.
ITEM 5. OTHER INFORMATION
On October 18, 2017, we entered into a new $600.0 million unsecured revolving credit facility, which replaced our previously existing $475.0 million revolving credit facility, and includes an accordion feature that allows for an additional $400.0 million of borrowing capacity subject to additional lender commitments. Our new revolving credit facility is scheduled to mature in January 2022. Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-month periods. The interest rate on the new facility at our current credit ratings is LIBOR plus 100 basis points and 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. The financial and other covenants under the new facility are similar to our previous credit facility. At October 18, 2017, we had $200.0 million outstanding under our new revolving credit facility and $0.6 million of outstanding letters of credit, which reduces the availability on the credit facility. As a result, the unused capacity of our new revolving credit facility at October 18, 2017 was $399.4 million.
We simultaneously modified our $200.0 million, five-year unsecured bank term loan, which was originally scheduled to mature in January 2019. The modified term loan is now scheduled to mature in November 2022 and the interest rate, based on current credit ratings, was reduced from LIBOR plus 120 basis points to LIBOR plus 110 basis points.
We also simultaneously prepaid without penalty $125.0 million on our seven-year unsecured bank term loan, which now has an outstanding principal amount of $225.0 million and is scheduled to mature in June 2020, and amended such loan to conform certain provisions to our other credit facilities.
ITEM 6. EXHIBITS
| | | | | |
Exhibit Number | Description |
| |
Exhibit
Number
| Description |
10.131.1 | Fifth Amended and Restated Credit Agreement, dated as of October 18, 2017, by and among the Company, the Operating Partnership, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, National Association and PNC Bank, National Association, as Co-Syndication Agents, and the Other Lenders named therein |
10.2 | |
12.1 | |
12.2 | |
31.1 | |
31.2 | |
31.3 | |
31.4 | |
32.1 | |
32.2 | |
32.3 | |
32.4 | |
101.INS | Inline XBRL Instance Document (the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | | |
Highwoods Properties, Inc. |
By: |
/s/ Brendan C. Maiorana |
By: |
/s/ Mark F. Mulhern Brendan C. Maiorana |
| Mark F. Mulhern |
| Executive Vice President and Chief Financial Officer |
|
| | | | |
Highwoods Realty Limited Partnership |
By: | Highwoods Properties, Inc., its sole general partner |
By: |
/s/ Mark F. MulhernBrendan C. Maiorana |
| Mark F. MulhernBrendan C. Maiorana |
| Executive Vice President and Chief Financial Officer |
Date: October 24, 20172023