Highwoods Properties Q1 Earnings Call Highlights

Highwoods Properties NYSE: HIW executives said the company posted what CEO Ted Klinck called “an excellent quarter” as leasing and development activity supported expectations for occupancy gains and future growth in cash flow.

On the company’s earnings call, Klinck highlighted increases in leasing performance across the portfolio, continued progress in its development pipeline, and ongoing capital recycling efforts. Highwoods reported first-quarter funds from operations (FFO) of $0.84 per share and maintained its full-year outlook.

Leasing trends, rent growth, and demand commentary

Klinck said leasing volume was strong in both in-service and development properties, pointing to a “50-basis point increase in our lease rate on our in-service portfolio” and an “800-basis point increase” in the lease rate on developments. He said these changes should “deliver meaningful upside in NOI, cash flow, and FFO over the next few years as occupancy ramps.”

During the quarter, Highwoods signed 958,000 square feet of second-generation leases, including more than 300,000 square feet of new leases. Klinck reported GAAP rent growth of 19.4% and cash rent growth of 4.8%, adding that net effective rents were the “second highest in company history” and 9% higher than the prior five-quarter average. He also said expansions outpaced contractions by nearly two to one.

COO Brian Leary framed leasing conditions as a “sprint to quality,” citing declining vacancy and sublease space, rising rents, and “steady concession packages” that together produced higher net effective rents. He said new supply remains constrained, with “office construction at historic lows or non-existent in many markets,” and noted that customers are increasingly seeking early extensions “to lock in location and terms.”

Responding to questions about the broader narrative around artificial intelligence and future office demand, Klinck said the company recognizes the uncertainty but has not seen appetite for space diminish. “Customers and prospects haven’t diminished their appetite for space and are making long-term commitments to their in-office strategies,” he said. Later in the Q&A, Klinck added that Highwoods had signed “one AI related tenant” focused on data centers in Dallas, but otherwise “really haven’t seen much AI demand at all.”

Development deliveries and lease-up progress

Klinck said Highwoods placed in service more than $200 million of development properties that were 87% leased. In Raleigh, he said GlenLake III—203,000 square feet of office and 15,000 square feet of retail—was 94% leased. The company also delivered GlenLake II retail, which he said is 100% leased to Crooked Hammock Brewery, adding 24,000 square feet of food and beverage offerings.

In Dallas, Highwoods placed in service Granite Park Six in the Legacy best business district (BBD), a 422,000-square-foot office property that Klinck said was 80% leased.

Highwoods also reported continued leasing progress in its remaining development pipeline:

• 23Springs (Uptown Dallas): 642,000 square feet; lease rate increased to 83% from 75% last quarter and 62% a year ago, with Klinck saying the company has “strong prospects” to bring the lease rate “into the 90s.”
• Midtown East (Westshore Tampa): 143,000 square feet; 95% leased, up from 76% last quarter and 39% a year ago. Klinck said the office component is 100% leased.

Across the properties placed in service during the first quarter and the remaining development pipeline, Klinck said the portfolio is 86% leased but only 48% occupied. “As the leases commence, we will capture significant growth in NOI, cash flow, and FFO,” he said.

Management also said it is seeing early-stage interest in potential new development. Klinck said the company is “starting to receive interest from build-to-suit and sizable anchor prospects,” though he cautioned it is still early and uncertain whether discussions will lead to new projects. In the Q&A, he said activity is emerging across multiple markets and tenant types, and that projects could involve both existing land and land acquired specifically for build-to-suit opportunities. Leary emphasized Highwoods would not buy land to land bank, saying land purchases would only occur “subject to a build-to-suit.”

Capital recycling, acquisitions, and share repurchase authorization

Highwoods said it invested $108 million during the quarter in “best-in-class commute-worthy properties in BBD locations” in Dallas and Raleigh through joint ventures, and sold $42 million of non-core properties in Richmond.

On dispositions, Klinck said the company expects to sell roughly $200 million of additional non-core assets by mid-year and is marketing other assets as well. He said Highwoods has not yet seen changes in buyer profiles tied to interest rates or AI-related macro headlines. Discussing dispositions completed since early 2025, Klinck said Highwoods sold about $270 million at roughly an 8% cap rate.

When asked about the Richmond sale specifically, Klinck said it was on “the upper end of that,” describing it as “maybe a low double digit type cap rate, but very low double digit.”

Highwoods also recently announced it may use non-core disposition proceeds to repurchase up to $250 million of common shares on a leverage-neutral basis. Klinck said the buyback provides “another option” for capital deployment alongside acquisitions and development. He noted development is “hard these days” due to costs, financing, and interest rates, but said the company sees opportunities for “well-capitalized developers to earn…pretty attractive risk-adjusted returns.”

Financial results, balance sheet, and 2026 outlook

CFO Brendan Maiorana reported first-quarter net income of $31.3 million, or $0.29 per share, and FFO of $94 million, or $0.84 per share. Net income included a $17 million gain from the Richmond disposition, which was not included in FFO.

Maiorana said FFO included two items that were contemplated in the company’s original outlook: a $2.2 million term fee at an unconsolidated JV (from a customer moving from McKinney & Olive to 23Springs) and a $1.4 million gain from selling the company’s interest in a third-party brokerage services firm.

Highwoods reiterated its full-year FFO outlook of $3.40 to $3.68 per share. Maiorana said the company is off to a strong start on leasing, but “most of these leases will have a financial benefit to 2027 and thereafter.”

On portfolio metrics, Maiorana said the leased rate increased to 89.7% from 89.2% in the prior quarter. He highlighted a 470-basis-point spread between leased and occupied rates—“three times our normal historical spread”—which management described as an indicator for future occupancy gains. The company reiterated its year-end occupancy outlook of 86.5% to 88.5%, implying a 250-basis-point increase at the midpoint over the remaining quarters of the year.

Maiorana said Highwoods ended the quarter with more than $650 million of available liquidity. He also noted that after quarter end the company closed a $100 million secured mortgage at Granite Park Six, resulting in more than $50 million of capital to Highwoods. The company expects additional JV financings later in the year that would “repatriate capital back to Highwoods and improve our liquidity and unencumbered debt-to-EBITDA ratio.”

Assuming $200 million of non-core asset sales and based on expected NOI growth, Maiorana said the company expects to end the year with debt-to-EBITDA “in the low to mid sixes,” with additional reductions possible as NOI grows. He added that Highwoods has only $40 million of remaining capital needed to complete its share of development properties, and said developments placed in service and remaining in the pipeline are expected to deliver “over $20 million of annual NOI growth compared to the Q1 26 run rate.”

On expense trends, Maiorana attributed elevated same-store operating expense growth in the quarter largely to higher utility costs tied to cold winter weather, particularly in February. He said the company was negative 60 basis points on same-store in the quarter and expects roughly flat same-store performance for the year on a cash basis and positive on a GAAP basis.

In Q&A, Maiorana also addressed the company’s leasing cadence needed to reach occupancy targets, saying roughly 100,000 square feet of new leasing per month through June or July would position Highwoods to reach the midpoint of its year-end occupancy range.

Separately, Klinck said Highwoods is tracking sublease space, which he said declined 6% to 7% from last quarter. He estimated the portfolio currently has “roughly 500,000” square feet being subleased.

About Highwoods Properties NYSE: HIW

Highwoods Properties, Inc is a publicly traded real estate investment trust (REIT) that acquires, develops, leases and manages office properties. The company's portfolio is primarily focused on Class A office space, with an emphasis on high-quality buildings in key urban and suburban submarkets. Highwoods seeks to generate long-term, recurring revenues through a mix of in-place lease renewals, strategic dispositions and build-to-suit developments. Its asset management platform drives operational efficiencies and tenant service initiatives across its holdings.

Founded in 1970 and headquartered in Raleigh, North Carolina, Highwoods Properties has expanded its presence to eight major metropolitan regions across the Southeastern United States and Texas.

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