Highwoods Properties’ Earnings Call Reveals Positive Outlook

Highwoods Properties ((HIW)) has held its Q2 earnings call. Read on for the main highlights of the call.

Highwoods Properties recently held its earnings call, reflecting a generally positive sentiment. The company is experiencing strong leasing activity and has increased its Funds From Operations (FFO) outlook, showcasing growth potential in its development pipeline. The focus on high-growth Sunbelt markets is yielding positive results, although challenges such as flat occupancy levels and elevated leasing CapEx remain. Overall, the positive aspects significantly outweigh the negatives, indicating a favorable outlook for the company.

Strong Financial Performance and Upbeat Outlook

Highwoods Properties reported a robust financial performance with an FFO of $0.89 per share in Q2. The company raised the midpoint of its 2025 FFO outlook by $0.02, now ranging from $3.37 to $3.45 per share. This marks a $0.06 increase at the midpoint since the start of the year, indicating nearly 2% growth. This financial strength underscores the company’s positive outlook.

Robust Leasing Activity

The company signed 923,000 square feet of second-generation leasing in Q2, including 371,000 square feet of new leasing. This robust leasing activity suggests strong prospects for future occupancy gains, reflecting positively on the company’s growth trajectory.

Growth Potential in Development Pipeline

Highwoods has identified over $55 million of annual NOI growth potential across its core operating properties and development projects. With over 60% of this potential already secured through signed leases, the company is well-positioned to capitalize on its development pipeline.

Sunbelt Strategy and Market Strength

Highwoods’ Sunbelt BBD strategy is proving successful, with markets like Nashville, Charlotte, and Dallas demonstrating strong leasing activity and economic growth. These regions continue to attract businesses and talent, supporting the company’s future growth.

Positive Outlook for Occupancy and Rent Growth

The company expects occupancy levels to improve by the end of 2025, driven by strong leasing activity and limited new office supply. This is anticipated to drive rent growth, particularly in high-barrier-to-entry markets.

Flat Occupancy Levels

Despite strong leasing efforts, occupancy levels remained flat from Q1 at 85.6%. This highlights challenges in quickly filling vacant spaces, although the company remains optimistic about future improvements.

Slow Development Leasing

Highwoods signed 19,000 square feet during the quarter in its development pipeline, which is relatively low. The company remains confident but cautious about future leased rate increases.

Elevated Leasing CapEx

The company noted elevated leasing CapEx due to future occupancy build, which could impact cash flows. Despite this, the overall financial performance remains strong.

Forward-Looking Guidance

During the earnings call, Highwoods Properties provided updated guidance, highlighting several key metrics. The firm reported strong financial results, with an FFO of $0.89 per share for the quarter and an increased midpoint of its 2025 FFO outlook. The company forecasts a potential $25 million annual NOI upside from stabilizing four core assets, with 50% of this upside already secured. Additionally, new developments like 23Springs and Midtown East have significant NOI growth potential, with strong leasing prospects.

In conclusion, Highwoods Properties’ earnings call reflects a generally positive sentiment, driven by strong financial performance and growth potential in its development pipeline. The company’s strategic focus on high-growth Sunbelt markets is paying off, despite challenges such as flat occupancy levels and elevated leasing CapEx. Overall, the positive outlook and strategic initiatives position Highwoods for continued success in the coming years.