Highwoods Properties, Inc. Q4 FY2025 earnings call

Key Points

• Fundamental Backdrop: Strong fundamentals in Sunbelt BBDs with limited new supply, high-quality space in demand, and rental rate growth. Existing companies in the footprint continue to grow.
• Development Pipeline: $474 million pipeline is 78% pre-leased, with developments like Glenlake 3 (84% leased) and Granite Park 6 (nearly 80% leased) showing progress.
• Acquisitions: Acquired $472 million in 2025, including 600 at Legacy Union in Charlotte, Terraces in Dallas, and Block 83 in Raleigh.
• Dispositions: Sold $66 million of non-core buildings and land in Q4, $42 million post-year-end, with plan to sell $190 million-$210 million by mid-2026 to fund acquisitions on a leverage-neutral basis.

In Q4, Highwoods Properties had FFO of $0.90 per share, with full-year 2025 FFO at $3.48 per share. Excluding land sale gains, full-year FFO was $0.7 per share, 2% higher than the midpoint of the 2025 outlook. Leasing activity included 526,000 square feet of second-gen space leased in Q4, with 221,000 square feet of new leases. Net effective rents were 20% higher than 2024 and 19% higher than 2022. The $474 million development pipeline was 78% pre-leased, with Glenlake 3 in Raleigh 84% leased, Granite Park 6 in Dallas nearly 80% leased, 23 Springs in Dallas nearly 75% leased, and Midtown East in Tampa 76% leased.

Forward-Looking

• 2026 FFO range: $3.40 to $3.68 per share, midpoint $3.54.
• Impact of Acquisitions: Acquisition of 600 at Legacy Union dilutes 2026 FFO by ~7¢ per share. Accelerated bond issuance impacts 2026 FFO by $0.03 per share. Temporary leverage elevation from dispositions increases 2026 FFO by 1¢ per share.
• Land Sale Gains: Up to 16¢ per share of land sale gains expected, midpoint 8¢.

• AI Impact: Uncertainty regarding AI's impact on jobs, but tenant base not showing significant displacement yet.
• Market Risks: Economic and market uncertainties could affect rental rates and occupancy.
• Capital Recycling: Risks associated with timing and execution of asset dispositions and acquisitions.

Q: On capital recycling and when to realize elevated growth rate?

A: Brendan mentioned one-time impacts in 2026, with 2027 and beyond being neutral to accretive to FFO.

Q: On development pipeline leasing demand?

A: Ted stated demand remains good, with developments like Glenlake 3 and Midtown East having strong prospects.

Q: On AI impact on tenant base?

A: Ted and Brian said no significant impact seen, client-facing jobs insulated from AI displacement concerns.

Q: On cash flow and payout ratio?

A: Brendan said 2026 leasing CapEx likely lower, with long-term cash flow outlook good due to normalized CapEx and future cash flow from straight-line rent.

Q: On non-core sales and land sales?

A: Ted said there's a mix of assets being sold, with land sales expected later in the year.

Q: On capital recycling completion and acquisitions?

A: Ted said there's still work to do on paring down non-core assets, with buybacks a potential capital allocation but standard operating procedure remains key.

Q: On development yield requirement?

A: Ted mentioned a premium over acquisition cap rates, with multiple factors influencing development yields.

Q: On guidance and fundamental drivers?

A: Brendan said adjusted for one-time items, core growth levers like occupancy gains and development stabilization remain intact.

Q: On occupancy build and expirations?

A: Ted stated forward expirations look good, with few large move-outs expected in the next two years.

Q: On asset sales pricing and concessions?

A: Ted said sub-8% cap rate on asset sales, with concessions stabilized and competitive markets moderating pressure.