Highwoods Properties NYSE: HIW reported third-quarter funds from operations of $100.1 million, or $0.89 per share, as leasing activity, occupancy and rental rates improved across its office portfolio. The company said it raised its full-year 2026 FFO outlook to $3.51 to $3.70 per share, with the midpoint increasing $0.025 from its prior outlook.
Net income for the third quarter was $31.8 million, or $0.29 per share. Chief Executive Officer Ted Klinck said the quarter reflected strengthening supply-and-demand conditions for high-quality office properties in the company’s markets, particularly in business districts across the Sun Belt.
“Demand for high quality office space continues to be strong while supply continues to shrink,” Klinck said. “The lack of high quality office space with limited to no new construction in the strongest BBDs across the Sun Belt is driving significant rent growth and higher occupancy in our portfolio.”
Leasing Results and Occupancy
During the quarter, Highwoods recorded GAAP rent growth of 29% and cash rent growth of 4% on more than 1.2 million square feet of second-generation leases. The company also reported its second-highest quarterly second-generation net effective rents in its history.
Portfolio occupancy increased 130 basis points from the end of the second quarter, while the lease rate rose 50 basis points sequentially to 90.1%. Highwoods signed 300,000 square feet of new second-generation leases during the quarter.
The company tightened its year-end occupancy guidance to a range of 87% to 88%, maintaining a midpoint of 87.5%. Chief Financial Officer Brendan Maiorana said Highwoods has about 800,000 square feet of signed but not yet commenced leases, supporting a favorable occupancy trajectory over the coming quarters.
Maiorana said the company expects new second-generation leasing volume to moderate as the portfolio becomes more fully leased. He said roughly 250,000 square feet of new leasing per quarter would be a useful benchmark for achieving occupancy of approximately 88.5% by the end of 2027.
Market Trends in Charlotte, Dallas and Nashville
Chief Operating Officer Brian Leary highlighted Charlotte, Dallas and Nashville as the company’s strongest markets during the quarter.
In Charlotte, Highwoods generated GAAP rent roll-ups of 77% and cash rent roll-ups of 19% in its Uptown and SouthPark portfolio. Leary said prime vacancy in the market had fallen to 7.7%, while asking rents climbed nearly 20%.
In Dallas, the company cited more than 1 million square feet of positive third-quarter net absorption reported by CBRE. Highwoods said vacancy in Preston Center stood at 5.2%, the lowest rate in Dallas-Fort Worth, while asking rents in both Preston Center and Uptown were above $60 per square foot on a triple-net basis.
Nashville was Highwoods’ leasing-volume leader, with 455,000 square feet signed across 24 deals. The activity included 111,000 square feet of new leases and two renewals totaling 280,000 square feet. At Westwood South in Brentwood, the company signed 38,000 square feet of new leases and increased occupancy to 88% from 0% at the beginning of the year.
Highwoods also signed 111,000 square feet in Atlanta and 105,000 square feet in Raleigh during the quarter. Leary said there was no new construction underway in either Atlanta or the Triangle market.
Asset Sales, Development and Capital Allocation
Highwoods sold $85 million of non-core assets during the quarter, including a Richmond portfolio for $53 million, an Atlanta building for more than $20 million, and two Raleigh buildings for nearly $12 million. Year to date, the company has sold $386 million of properties at an average capitalization rate below 8%.
The company expects to sell an additional $100 million to $250 million of non-core assets by year-end. Klinck said the remaining potential sales span Atlanta, Raleigh, Nashville, Tampa, Richmond and Pittsburgh, and that the blended cap rate would be in the low-to-mid 9% range if all of the anticipated sales close.
Management said it is using disposition proceeds to pursue higher-quality investments, but it has not found acquisitions this year that meet its risk-adjusted return requirements. The company closed nearly $600 million of acquisitions in Dallas, Raleigh and Charlotte during the prior year.
Highwoods is completing its current development pipeline with 23 Springs, a 642,000-square-foot Dallas Uptown office tower in which it owns a 50% joint-venture interest. The property was 95% leased and expected to stabilize in the second quarter of 2027.
The company’s outlook includes $100 million to $400 million of potential new development announcements for the remainder of the year. Management said it has received interest from build-to-suit and anchor tenants, and it believes development can offer more attractive risk-adjusted returns than acquisitions despite longer construction and lease-up timelines.
Balance Sheet and Cash Flow Outlook
Highwoods reduced its debt-to-EBITDA ratio to 6.1 times in the third quarter from 6.7 times at the beginning of the year. The company ended the quarter with nearly $280 million of cash and no borrowings on its $750 million revolving credit facility.
During the quarter, Highwoods completed a $56 million secured mortgage at its Midtown East joint venture and a $370 million delayed-draw secured mortgage at its 23 Springs joint venture. The financings repatriated more than $99 million to Highwoods.
The company’s only debt maturity before the first quarter of 2028 is a $286 million bond due in March 2027. Maiorana said the company does not expect to need to raise capital to address that maturity because of its cash position.
Same-property cash NOI growth was 0.2% in the quarter, compared with GAAP same-property NOI growth of 4.1%. Maiorana attributed much of the difference to free-rent periods associated with recently signed leases. He said straight-line rent guidance for the year was in the mid-$40 million range, compared with a more typical low-to-mid-$20 million range, indicating that more rent is expected to convert to cash payments in future periods.
Leasing capital expenditures totaled more than $140 million year to date, according to management. Maiorana said the company expects normalized annual leasing capital expenditures to decline into a range of roughly $110 million to $120 million as occupancy stabilizes, with a more substantial improvement in free cash flow expected in 2028 and thereafter.
About Highwoods Properties (NYSE:HIW)
Highwoods Properties, Inc NYSE: HIW is a real estate investment trust that owns, develops, leases and manages primarily office properties. Its portfolio includes office towers, campuses and mixed-use assets designed to serve businesses across a range of industries.
The company focuses on select high-growth markets in the U.S. Sun Belt, including Atlanta, Charlotte, Nashville, Orlando, Raleigh, Richmond and Tampa. In addition to leasing office space, Highwoods provides property management, development and tenant-support services for its buildings and commercial real estate customers.
Highwoods Properties is headquartered in Raleigh, North Carolina.
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