Highwoods ((HIW)) has held its Q1 earnings call. Read on for the main highlights of the call.
Highwoods Properties’ recent earnings call conveyed a strong sense of optimism and confidence, underscored by impressive financial performance and strategic investments. Despite facing macroeconomic uncertainties and challenges related to leasing capital expenditure, the company remains well-positioned for future growth, thanks to its focus on high-quality assets in the Sunbelt markets.
Strong Financial Performance and Growth
Highwoods Properties reported Funds From Operations (FFO) of $0.83 per share, surpassing expectations and generating robust cash flow. The company has also raised its 2025 FFO outlook, reflecting confidence in its growth trajectory. This financial success is bolstered by substantial leasing activity and strategic investment transactions, setting the stage for continued expansion.
Robust Investment Activity
The company demonstrated strategic acumen by recycling $145 million from non-core dispositions into acquiring a $138 million Class AA building in North Hills, Raleigh. This acquisition is expected to be accretive to cash flow and significantly contribute to long-term growth, enhancing the company’s portfolio quality.
Leasing Success Across Portfolio
Highwoods achieved notable leasing success, signing 97,000 square feet of first-generation leases and 700,000 square feet of second-generation office space. The net effective rents achieved were more than 20% higher than the previous five-quarter average, indicating strong demand and a healthy leasing pipeline.
Positive Outlook for Office Market
Despite macroeconomic uncertainties, Highwoods remains optimistic about the office market. The company cites strong leasing activity, robust demand in Sunbelt markets, and a lack of new office supply as factors that are expected to drive rent growth and support future performance.
Macroeconomic Uncertainties
The company acknowledged potential risks from macroeconomic factors, including government cutbacks and global tariffs, which could impact future leasing and investment activities. However, Highwoods remains vigilant in navigating these challenges.
Elevated Vacancy and Lease-Up Challenges
While Highwoods executed significant leasing activities, known customer move-outs led to a temporary dip in occupancy. The company is focused on the lease-up of certain core properties to drive future Net Operating Income (NOI) growth.
Increased Leasing Capital Expenditure
Highwoods anticipates higher leasing capital expenditures in the coming quarters as it works to increase occupancy. This effort is expected to impact cash flow in the short term but is seen as a necessary step to enhance long-term financial performance.
Forward-Looking Guidance
During the earnings call, Highwoods provided updates on its forward-looking guidance. The company raised the midpoint of its 2025 FFO outlook to a range of $3.31 to $3.47 per share, reflecting strong financial performance and strategic acquisitions. Despite a dip in occupancy due to known move-outs, Highwoods expects growth in the coming years, supported by a healthy backlog of signed leases and anticipated developments in Raleigh and Dallas.
In summary, Highwoods Properties’ earnings call highlighted a positive sentiment driven by strong financial results and strategic investments. The company’s focus on high-quality assets in Sunbelt markets positions it well for future growth, despite facing macroeconomic uncertainties and leasing challenges. Investors can remain optimistic about Highwoods’ potential for continued success.