Highwoods Properties Inc (NYSE:HIW) Q2 2020 Earnings Conference Call - Final Transcript

Jul 29, 2020 • 11:00 am ET


Highwoods Properties Inc (NYSE:HIW) Q2 2020 Earnings Conference Call - Final Transcript


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Ted Klinck

fortress balance sheet with ample available liquidity to fund leasing capital expenditures and our development pipeline while having dry powder to capitalize on future growth opportunities.

In addition to having a high-quality portfolio and strong balance sheet, we are well-positioned given our geographic footprint. The Southeast continues to benefit from positive demographic trends, both population and job growth. Some notable office using job announcements in our markets have occurred even in the midst of the pandemic. These include the Fortune 50 company, Centene, announcing a 6,000 job, $1 billion, East Coast headquarters in Charlotte, Microsoft with 1,500 new jobs in Atlanta, and publicly traded software company, Bandwidth, in Raleigh with 1,200 new jobs and a planned new headquarters campus. These announcements illustrate the long-term attractiveness of our markets and support the notion that companies still value a collaborative, in-person environment to foster creativity and strengthen company culture.

In the second quarter, we delivered FFO of $0.93 per share, which equals our first quarter results. Further, the second quarter reflected a full quarter of lost NOI from $338 million of properties sold in the first quarter. Our financial results were excellent, especially considering the challenging economic conditions. In addition to strong FFO, our portfolio metrics were solid with occupancy of 91.1%, up 20 basis points sequentially, same-property cash NOI growth of 2.4% excluding the impact of temporary rent deferrals, and in-place cash rents up 5.1% year-over-year.

We leased 821,000 square feet of second gen office space with GAAP rent growth of 13.6% and cash rent growth of 5.5%, and this was done with limited leasing capex, which drove net effective rents 7.6% higher than our prior five quarter average.

We stated last quarter it was too difficult to predict where the economy would go from here, and we still feel like predicting the shape of the economic recovery is speculative, so we're maintaining our focus on the following items that we believe best position us in the near-term: maintaining liquidity and a strong balance sheet; keeping our buildings fully open and operational; keeping our development projects on time and on budget; working with customers to maintain occupancy and timely rent payments; minimizing operating expenses without sacrificing operating performance or leasing opportunities; and capturing as many renewals and relets as possible given this uncertain environment.

We've reported our rent collection figures each month since the start of the pandemic, which have been strong at 99% every month, including July. Temporary rent deferrals equate to 1.2% of annual revenues, up modestly since our first quarter call. Importantly, new rent relief requests have dropped off significantly since mid-May. We have long emphasized the importance of having significant customer, geographic and industry diversification across our portfolio. No market accounts for more than 20% of revenues, no customer other than the federal government accounts for more than 4% and no industry category accounts for more than 25%. This diversification is serving us well in this uncertain macroeconomic environment.

Turning to our updated 2020 FFO outlook. Given