Highwoods Properties Eyes 2027 Rebound After Transition Year

Highwoods Properties ((HIW)) has held its Q4 earnings call. Read on for the main highlights of the call.

Highwoods Properties’ latest earnings call balanced notable near-term earnings headwinds with a confident long-term story built around the Sunbelt. Executives leaned on strong rent growth, a highly pre-leased development pipeline, and disciplined capital recycling to argue that 2026 will be a transition year before a stronger earnings ramp in 2027 as projects and acquisitions stabilize.

Strong FFO Performance and Higher 2026 Outlook

Highwoods reported Q4 FFO of $0.90 per share, including $0.06 from land sale gains, and full-year 2025 FFO of $3.48 per share. Management introduced a 2026 FFO range of $3.40–$3.68, with the midpoint of $3.54 representing about 5.7% growth versus the company’s initial 2025 outlook, even after factoring in temporary drags.

Robust Leasing Volume and Healthy Rent Spreads

The company signed roughly 3.2 million square feet in 2025, posting strong GAAP rent spreads of 16.4% for the year. In Q4 alone, Highwoods leased 526,000 square feet of second‑generation space, including 221,000 square feet of new deals, and achieved positive cash spreads with GAAP rent growth in the mid‑teens.

Net Effective Rents Hit a New High

Management highlighted net effective rents as a key earnings driver, noting they were 20% higher than 2024 levels and 19% above 2022, the previous peak. They labeled 2025 a “high watermark” for net effective rents, reinforcing the pricing power of its portfolio despite broader office market concerns.

Development Pipeline Highly Pre-Leased

Highwoods’ $474 million development pipeline is now 78% pre‑leased, up from 72% last quarter and 56% a year earlier. Flagship projects such as Glenlake 3 (84% leased), Granite Park 6 (nearly 80%), 23 Springs (nearly 75% with rents about 40% above underwriting), and Midtown East (76%) give visibility into future NOI growth.

Accretive Acquisitions in Key Sunbelt BBDs

The company acquired $472 million of assets in 2025, including 600 at Legacy Union in Charlotte and early‑2026 deals such as Terraces and Block 83. Management stressed that these assets in top Sunbelt business districts like Charlotte, Raleigh, and Dallas should deliver roughly 8% stabilized GAAP and cash yields on what they called attractive cap rates.

Capital Recycling and Balance Sheet Management

Over the past year, Highwoods invested roughly $580–800 million while selling $270 million of non‑core properties. To keep leverage in check, the REIT plans an additional $190–210 million of dispositions by midyear and expects this leverage‑neutral rotation to be modestly accretive to FFO once 600 at Legacy Union is stabilized.

Sunbelt Fundamentals Support Long-Term Demand

Executives repeatedly pointed to tight supply, population inflows, and strong job growth across their Sunbelt markets. With corporate relocations and positive absorption in cities like Charlotte, Dallas, and Nashville, Highwoods sees a continuing “flight to quality” that benefits its class‑A office portfolio and supports rent growth.

Operational Metrics Show Momentum

The portfolio ended 2025 more than 89% leased, and management expects to lift occupancy by about 200 basis points between 2025 and 2026. Q4 saw 88 leasing deals with an average term of roughly six years, and expansions outpaced contractions about 2.5 to 1 in the quarter and more than 3 to 1 for the full year, underscoring tenant demand.

Temporary 2026 FFO Headwinds from Recent Moves

Management quantified around $0.09 per share of temporary 2026 FFO headwinds at the midpoint of guidance. The largest drag is about $0.07 per share from 600 at Legacy Union, which is heavily leased but not yet fully occupied, and about $0.03 from opportunistic early bond issuance, partially offset by roughly $0.01 from temporarily higher leverage and land sale gains.

Near-Term Cash Flow Pressure and Leasing CapEx

Leasing capital spiked to about $145 million in 2025, versus a typical $100 million, putting pressure on near‑term cash flows. Management said cash flow fell roughly $13–14 million short of covering the dividend last year but expects leasing CapEx to decline in 2026 as this burst of investment begins to normalize.

600 at Legacy Union Weighs on 2026 NOI

The 600 at Legacy Union acquisition, a 411,000‑square‑foot tower in Charlotte, came in 89% leased but only in the mid‑40% range occupied. As a result, management projects about $10 million of GAAP NOI from the asset in 2026, rising to more than $18 million in 2027, making the building a near‑term drag but a key contributor to future earnings.

Elevated Leverage Pending Dispositions

Leverage is temporarily above target as Highwoods absorbs its recent acquisition and development spending. The company needs roughly $200 million of additional asset sales by midyear to complete its leverage‑neutral plan, warning that delays would extend the period of elevated balance‑sheet risk even as EBITDA is expected to grow.

Flat Same-Property Cash NOI in 2026

Despite strong leasing metrics, Highwoods expects same‑property cash NOI to be roughly flat in 2026. GAAP same‑property NOI is projected to run about 150 basis points higher than cash NOI, reflecting the accounting impact of straight‑line rents and underlining that cash growth will lag the underlying leasing progress in the near term.

Q4 Slowdown in Second-Generation Leasing

Management acknowledged that second‑generation leasing was slower in Q4 than earlier in the year, though they framed this as a timing issue. They indicated that signings have accelerated in early 2026 and estimate they need about 750,000 square feet of new leasing this year to hit their year‑end occupancy target.

Forward-Looking Guidance and 2027 Inflection

For 2026, Highwoods guided FFO to $3.40–$3.68 per share, with a midpoint of $3.54 that incorporates up to $0.16 per share of land sale gains and assumes $190–210 million of dispositions by midyear. The company expects occupancy to climb about 200 basis points to roughly 87.5% by year‑end, same‑property cash NOI to be flat, and 600 at Legacy Union’s NOI and the pre‑leased development pipeline to drive a more meaningful earnings ramp in 2027.

Highwoods’ call painted a picture of a REIT in mid‑transition, leaning into Sunbelt strength while digesting a wave of investment and leasing costs. While 2026 will show muted cash growth and some FFO drag from 600 at Legacy Union and elevated leverage, management argued that the combination of rising occupancy, strong rent economics, and a largely pre‑leased pipeline positions the company for healthier growth beyond next year.