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Commercial Real Estate
Business Observer Friday, Feb. 21, 2020 1 month ago

Highwoods 2019 earnings impacted by Laser Spine loss

Abrupt tenant closure in Tampa cut net operating income percentage growth by more than half
by: Kevin McQuaid Commercial Real Estate Editor

The loss of tenant Laser Spine Institute early in 2019 in Tampa sent ripples through landlord Highwoods Property Inc.’s earnings for the balance of the year, company earnings released earlier this month show.

Tucked inside the Raleigh, N.C.-based real estate investment trust’s (REIT) fourth-quarter and 2019 earnings report – an otherwise glowing piece of evidence demonstrating how some office building owners are faring in today’s business environment – was a stark admission about the impact a lone major tenant cane have.

“We achieved very strong leasing metrics, reflecting healthy business conditions across our markets,” Highwoods’ President and CEO Ted Klinck says in a statement.

Although funds from operations – a key REIT measure of financial health – grew by 5.4%  year-over-year in the final quarter of 2019; the company leased 1.2 million square feet (including nearly 400,000 square feet worth of new lease commitments); captured rent growth of 19.8% on a generally accepted accounting practice basis and reached net effective rents of $188.17 per square foot – 14.3% above its prior five-quarter average, the results could have been even better.

Same property cash net operating income, for instance, rose 1.1% in the final three months of 2019 as compared to the same period in 2018. Excluding the impact of Laser Spine’s sudden exit from a 171,000-square-foot building where it was the sole tenant, however, and same property cash NOI would have risen 2.6%, Highwoods notes.

Straight-line rental income for the twelve months ended Dec. 31 of last year also took a hit from Laser Spine, Highwoods earnings show.

Rental income dropped by $346,000 vs. 2018 overall, but primarily because of $4.5 million in credit losses in the first quarter of the year attributed to Laser Spine, the company says.

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