Highwoods Properties, Inc. (HIW)

Q1 2010 Earnings Call Transcript

April 29, 2010 11:00 am ET


Tabitha Zane – VP, IR and Corporate Communications

Ed Fritsch – President and CEO

Mike Harris – EVP and COO

Terry Stevens – SVP and CFO


Jana Galan [ph] – Bank of America/Merrill Lynch

Chris Caton – Morgan Stanley

John Stewart – Green Street Advisors

Young Ku – Wells Fargo

David Nebinski – Robert Baird

Suzanne Kim – Credit Suisse

Mike Carroll – RBC Capital Markets



Welcome to the Highwoods Properties first quarter 2010 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to Tabitha Zane, Vice President, Investor Relations. Please go ahead, ma'am.

Tabitha Zane

Thank you. Good morning, everybody. On the call today are Ed Fritsch, President and Chief Executive Officer; Terry Stevens, Chief Financial Officer; and Mike Harris, Chief Operating Officer. If anyone has not received a copy of yesterday’s press release or the supplemental, please visit our website at www.highwoods.com, or call 919-431-1529, and we will e-mail copies to you. Please note, in yesterday’s press release we have announced the planned dates for our financial releases for the rest of this year. Also, following the conclusion of today’s conference call, we will post senior management’s formal remarks on the Investor Relations section of our website under the presentations section.

Before we begin, I would like to remind you that this call will include forward-looking statements concerning the company's operations and financial condition, including estimates and effects of asset dispositions and acquisitions; the cost and timing of development projects; the terms and timings of anticipated financings, joint ventures, rollover rents, occupancy, revenue trends, and so forth.

Such statements are subject to various risks and uncertainties. Actual results could materially differ from those currently anticipated due to a number of factors, including those identified at the bottom of yesterday’s release and those identified in the company's Annual Report on Form 10-K for the year ended December 31, 2009, and subsequent reports filed with the SEC.

The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. During this call, we will also discuss non-GAAP financial measures, such as FFO and NOI. Definitions of FFO and NOI and an explanation of management’s view of the usefulness and risks of FFO and NOI can be found toward the bottom of yesterday’s release and are also available on the Investor Relations section of the web at highwoods.com.

I would now like to turn the call over to Ed Fritsch.

Ed Fritsch

Good morning and thank you for joining us today. We are pleased with our first quarter results, with FFO up $0.01 from the fourth quarter and essentially flat from a year ago after adjusting for the debt, equity and disposition transactions we planned and executed last year that enhanced our liquidity for future growth opportunities.

We are seeing increased leasing activity in many of our markets, including potential build-to-suit opportunities. There appears to be some guarded optimism about the economy and we are hopeful this will lead to the beginning of meaningful job growth sometime in 2011. As noted in yesterday’s press release, we leased 1.3 million square feet of space, 75% of which was office. This compares to 851,000 square feet leased in the same quarter a year ago, 64% of which was office. This is the most office space we’ve leased since the second quarter of 2008.

We continue to benefit from a higher quality portfolio, concentrated in better submarkets, a healthy balance sheet, and strong relationships with our customers and the brokerage community. As a result, in every one of our core markets, our office occupancy remains significantly better than the market as a whole.

We are seeing a number of build-to-suit opportunities, including projects for both the GSA and the private sector. While we can’t predict how many of these, if any, will come to fruition, our proven track record as a developer and our ability to undertake a project without financing contingencies, provide us with distinct competitive advantages.

As stated in yesterday’s release, we placed one development project in service in the first quarter, Cool Springs IV in Nashville. Our $41.6 million wholly-owned development pipeline now consists of two projects; Triad Centre III, a 148,000 square foot office building in Memphis, and River Point IV, a 200,000 square foot industrial property in Atlanta. We are also developing a 171,000 square foot office building in a joint venture for the GSA in Charlotte.

Our search for high-quality acquisitions to strengthen our franchise, enhance our portfolio, and generate long-term attractive returns is ongoing. As all of us know, very little has come to market. What we are hearing from owners, bankers and brokers is that, at this point anyway, owners are basically only willing to sell lower quality assets, which would not enhance our portfolio. Our search for quality assets continues.

On the disposition front, we continued to make progress towards our selling of $50 million to $150 million of non-core assets this year. As I do every year, I recently hosted our annual employee presentation in each of our divisions. This year’s theme is focused on a review of the economy, our industry and where opportunities lie. While everyone at Highwoods understands the current operating environment is somewhat difficult, it is abundantly clear that a roll-up-your-sleeves, get-it-done attitude is pervasive throughout our company.

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