Highwoods Properties NYSE: HIW reported second-quarter funds from operations of $0.90 per share and raised its full-year 2026 FFO outlook, citing stronger leasing, rising occupancy and progress in recycling capital into future investment opportunities.
The office REIT reported net income of $93.5 million, or $0.85 per share, and FFO of $100.7 million, or $0.90 per share, for the quarter. Results included a $0.035-per-share gain from the sale of a non-core Richmond land parcel held through a 50/50 joint venture.
Chief Executive Officer Ted Klinck said the company produced more than 1 million square feet of second-generation leasing during the quarter, including 326,000 square feet of new leases, along with 63,000 square feet of first-generation leasing in its development pipeline.
Cash rent spreads exceeded 3%, while GAAP rent spreads topped 20%. Net effective rents were 8% above Highwoods’ prior five-quarter average and represented the company’s second-highest level historically, according to Klinck.
Occupancy, Rent Growth and Market Conditions
Highwoods’ occupancy rose 70 basis points sequentially in the second quarter, or 110 basis points when adjusted for properties that were owned and in service throughout the quarter. The company expects occupancy to continue improving during the second half of 2026.
Chief Operating Officer Brian Leary said the company signed more than 120 leases, including 41 new agreements totaling 326,000 square feet. He attributed leasing conditions to limited new office supply and declining availability of high-quality buildings in the company’s best business districts across the Sun Belt.
Leary said CBRE data showed the national office construction pipeline had declined to 6.4 million square feet, its lowest level since 1996. Highwoods estimates vacancy in high-quality properties within its core business districts is at least 5 percentage points below reported overall submarket vacancy rates.
- In Charlotte, Highwoods reported cash rent roll-ups of 10%, GAAP roll-ups of 29%, and net effective rents above $31 per square foot in its SouthPark and Uptown portfolio.
- In Nashville, the company completed 241,000 square feet of leasing, with about half representing new business. Management said the activity should support occupancy gains into next year.
- In Dallas, Highwoods said its Uptown and Preston Center properties benefited from submarket vacancy below 5%, generating double-digit cash and GAAP rent spreads and net effective rents above $50 per square foot.
Klinck said landlord pricing power was strongest in Dallas, Charlotte and Nashville, though Buckhead in Atlanta and Westshore in Tampa were also showing improved economics. He estimated that Highwoods was able to push rents across roughly 60% to 65% of its portfolio, though conditions vary by market and submarket.
Development Pipeline Nears Stabilization
Highwoods’ development pipeline now consists solely of 23Springs in Uptown Dallas. The property was 93% leased at quarter-end, up 10 percentage points from the prior quarter. The company has $28 million of projected remaining spending to bring the project to stabilization.
Management accelerated the expected stabilization date for 23Springs to the second quarter of 2027 from the first quarter of 2028, citing stronger-than-anticipated leasing and rents that are “meaningfully higher” than original underwriting assumptions.
The company placed Midtown East in service during the second quarter, leaving 23Springs as the only remaining project in its active pipeline. Maiorana said Highwoods has stopped capitalizing costs at 23Springs, which should create upside to FFO and cash flow as leases commence over the next four quarters.
Highwoods now expects to announce at least $100 million of new development during the remainder of 2026 and said potential announcements could reach $400 million. Klinck said discussions have centered largely on build-to-suit and substantially pre-leased projects in existing core markets, involving financial-services companies and other corporate tenants.
Management also discussed Ovation, its approximately 150-acre mixed-use development site in Franklin, Tennessee. Leary said the site is entitled for 1.4 million square feet of office space, 1,600 residential units, 430,000 square feet of retail and 350 hotel rooms. The company has identified build-to-core partners and expects to provide additional updates as plans advance.
Asset Sales Bolster Liquidity
Highwoods generated $260 million of disposition proceeds during the quarter through the sale of Bridgestone Tower in Nashville and the Richmond land parcel. The company expects to close another $74 million of non-core sales in the coming weeks, which would bring year-to-date dispositions to $375 million.
The company has additional assets on the market and expects at least $100 million, and potentially as much as $300 million, of further sales by year-end. Management said the assets include non-core buildings and land parcels, with the completed and near-term sales collectively carrying an approximately 8% cap rate. Additional sales could have high-single-digit cap rates on average, according to Klinck.
Klinck characterized the Bridgestone Tower sale as effectively a swap for 6Hundred South Tryon in Charlotte, which Highwoods acquired late last year. He said 6Hundred South Tryon is eight years newer, required $30 million less total investment, has $1 million more NOI upside upon stabilization, higher annual rent increases, a longer weighted-average lease term and a more diversified rent roll.
Management said non-core dispositions generally carry higher capital-expenditure requirements than the broader portfolio. Maiorana said that after accounting for those capital needs, sales are likely to be accretive to cash flow regardless of how proceeds are used, or roughly neutral if applied to debt repayment.
Guidance Raised as Balance Sheet Improves
Highwoods increased its 2026 FFO guidance to $3.46 to $3.70 per share, or $3.58 at the midpoint, an increase of $0.04 per share. Excluding land-sale gains, the midpoint rose $0.01 per share despite $0.04 per share of dilution from higher-than-expected property dispositions and $0.01 per share of pre-development cost write-offs.
The updated outlook assumes excess sale proceeds remain in cash through year-end. Management expects to deploy proceeds into income-producing investments over time, which it said should become accretive to FFO and cash flow.
Highwoods ended the quarter with $145 million of cash and no borrowings on its $750 million revolving credit facility. Debt to EBITDA declined to 6.2 times from 6.7 times in the first quarter. The company also extended a $150 million term loan maturity from 2027 to 2031 and reduced its borrowing rate by 15 basis points.
Following planned asset sales, Highwoods expects pro forma cash of more than $250 million with no revolver borrowings. Its only maturity before the first quarter of 2028 is a March 2027 bond with a remaining balance of $289 million after the company repurchased $11 million of notes during the quarter.
On the dividend, Klinck said Highwoods views the payout as an important component of shareholder returns and does not intend to “overreact on a year or two of shortfalls.” Maiorana said management expects occupancy gains, conversion of free rent to cash rent, development NOI and lower leasing capital expenditures to improve cash flow over time.
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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