Highwoods Properties (NYSE:HIW) outlined a more constructive view of Sun Belt office fundamentals and detailed a year of active portfolio repositioning during its fourth-quarter 2025 earnings call. Management emphasized limited new supply in its core business districts (BBDs), improving rent trends, and a development pipeline that is nearing stabilization, while also acknowledging several temporary factors that will weigh on 2026 results.
Management highlights improving Sun Belt office backdrop
CEO Ted Klinck said the company is “upbeat” about the next few years, citing “limited to no new supply” across Highwoods’ core Sun Belt BBDs and “dwindling blocks of available, high-quality space.” He said migration to the Sun Belt and continued growth among existing companies in the footprint has supported rental rate growth, including higher net effective rents and “rent spikes” in the strongest BBDs.
Fourth-quarter results and leasing trends
For the fourth quarter, CFO Brendan Maiorana reported net income of $28.7 million, or $0.26 per share, and funds from operations (FFO) of $100.8 million, or $0.90 per share, including $0.06 per share of land sale gains. Full-year 2025 FFO was $3.48 per share; excluding land sale gains, management said full-year FFO was $0.07 per share, or 2%, above the midpoint of the company’s original 2025 outlook.
On leasing, Klinck said Highwoods leased 526,000 square feet of second-generation space in the fourth quarter, including 221,000 square feet of new leases, and signed 95,000 square feet of first-generation leases within its development pipeline. He said fourth-quarter signings were lower than earlier in the year, attributing it largely to timing, and noted that leasing activity accelerated early in 2026.
COO Brian Leary said the company signed 3.2 million square feet in 2025, with GAAP rent spreads of 16.4% and “all-time high net effective rents.” In the fourth quarter, Leary said Highwoods signed 88 deals with positive 1.2% cash rent spreads and weighted average lease terms of almost six years. He added that expansions outpaced contractions 2.5-to-1 in the quarter and more than 3-to-1 for the year, ending 2025 “over 89% leased.”
Klinck said net effective rents in 2025 were 20% higher than 2024 and 19% higher than 2022, which he called the prior peak year.
Development pipeline leasing and future projects
Highwoods’ $474 million development pipeline ended the quarter 78% pre-leased, up from 72% in the prior quarter and 56% a year earlier. Management provided property-level updates:
- Glenlake III (Raleigh): 218,000 square feet, 84% leased, with prospects to reach the mid-90% range.
- Granite Park VI (Dallas – Legacy BBD): 422,000 square feet, nearly 80% leased after signing 44,000 square feet since the prior call.
- 23Springs (Uptown Dallas): 642,000 square feet mixed-use, nearly 75% leased after signing 51,000 square feet; management said current rents are 40% above pro forma underwriting.
- Midtown East (Tampa): 143,000 square feet, 76% leased, with “strong prospects” for remaining office space.
Given demand for current projects and interest from larger users, Klinck said the company has begun conversations around build-to-suit and anchor customers for new developments. The 2026 outlook includes the potential for up to $200 million of development announcements, though management did not disclose development yield targets beyond noting they would need to exceed acquisition cap rates.
Acquisitions, dispositions, and leverage-neutral capital rotation
Management highlighted substantial investment activity over the past 12 months. Klinck said Highwoods invested approximately $800 million over that period (nearly $600 million at its share), focusing on BBD acquisitions in Charlotte, Raleigh, and Dallas. He described those acquisitions as having a weighted average vintage of four years, an initial lease rate of 93.5%, weighted average lease terms (WALTs) of nine years, rents about 15% below market, and projected stabilized cash yields of roughly 8%.
During 2025, Highwoods acquired $472 million of assets, including the $223 million purchase of 600 at Legacy Union in Charlotte in the fourth quarter. The 411,000-square-foot Class AA office tower was completed in 2025 and was 89% leased at the time of the call, up from 84% when acquired in November. However, Klinck and Maiorana emphasized that occupancy is currently in the mid-40% range because several signed leases have not commenced, resulting in temporarily lower NOI in 2026. Maiorana said GAAP NOI at 600 is projected to be about $10 million in 2026 and more than $18 million in 2027 upon stabilization, with American Express scheduled to commence occupancy on December 1, 2026.
In January, the company also acquired The Terraces in Dallas and Block 83 in Raleigh for a combined expected investment of $318 million (Highwoods’ share of $108 million, plus $13 million of preferred equity). The Terraces, a 173,000-square-foot property built in 2017 in Preston Center, is now 100% leased after a post-acquisition signing; Klinck said the submarket is supply-constrained and offers more than 30% mark-to-market upside on in-place leases. Block 83 is a 492,000-square-foot mixed-use asset in downtown Raleigh that includes two office buildings and 27,000 square feet of amenity retail; Highwoods initially owned a 10% interest, with the North Carolina Investment Authority holding 90%, and Highwoods retains an option to increase its ownership to 50%.
Maiorana said the company plans to fund acquisitions on a leverage-neutral basis primarily through non-core dispositions. Highwoods sold $66 million of non-core buildings and land in the fourth quarter and an additional $42 million of non-core properties in Richmond after year-end. The 2026 outlook assumes $190 million to $210 million of additional dispositions by mid-year. In Q&A, Klinck said cap rates on $270 million of dispositions completed in 2025 and early 2026 were “sub-8%,” and he expects remaining dispositions to be similar or “maybe a little bit better.” He also said the additional $200 million of dispositions planned by mid-year do not include land sales.
2026 outlook includes temporary headwinds and potential land gains
Highwoods introduced initial 2026 FFO guidance of $3.40 to $3.68 per share, or $3.54 at the midpoint. Maiorana detailed several items expected to temporarily impact 2026 FFO but not 2027 and beyond, including:
- Approximately $0.07 per share of 2026 dilution from 600 at Legacy Union due to leased-not-yet-occupied space.
- Approximately $0.03 per share of 2026 dilution from excess liquidity after the company accelerated a $350 million unsecured bond issuance into late 2025, leaving excess cash and no credit facility borrowings for much of 2026.
- Approximately +$0.01 per share benefit in 2026 from temporarily elevated leverage until dispositions are completed.
Maiorana said the net of these items is about $0.09 per share of temporarily lower FFO at the midpoint in 2026, with no impact on 2027 FFO. Guidance also includes up to $0.16 per share of land sale gains (or $0.08 at the midpoint), tied to parcels under contract expected to close later in 2026. He also noted a year-over-year headwind of roughly $0.05 on “other income” in 2026 compared with an elevated level in 2025.
For occupancy, Maiorana said the company provided year-end occupancy rather than average occupancy due to the “outsized impact” of 600. The midpoint year-end 2026 occupancy projection is 87.5%. In Q&A, he outlined the leasing math needed to reach that level, including roughly 700,000 to 750,000 square feet of new leasing (about 300,000 square feet per quarter) to be signed in time for occupancy by mid-third quarter.
On cash flow and dividends, Maiorana said leasing capital spending was elevated in 2025 at $145 million versus a more typical $100 million, and he expects 2026 spend to be lower. He also said straight-line rent represents future cash flow that should come online over time, and referenced cumulative retained cash flow above the dividend from 2021 through 2024.
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.
