Highwoods Properties Q3 FFO Meets Estimates, Revenues Miss

Highwoods Properties (HIW) reported mixed third-quarter results, with rental revenues of $201.8 million missing estimates and declining 1.2% year-over-year, alongside a 3.6% decrease in same-property cash net operating income and a 20 basis point occupancy decline to 85.3%. Despite these challenges, the company demonstrated robust leasing activity, securing 1.0 million square feet with 18.3% GAAP rent growth, and raised its 2025 FFO per share guidance to $3.41-$3.45, signaling a cautiously optimistic forward outlook despite projected negative same-property cash NOI growth of -3% to -2%.

Analysis

Highwoods Properties (HIW) reported a mixed third quarter, with rental and other revenues totaling $201.8 million, missing the Zacks Consensus Estimate of $203.4 million and declining 1.2% year-over-year. The in-service portfolio occupancy decreased by 20 basis points quarter-over-quarter to 85.3%, and same-property cash Net Operating Income (NOI) fell 3.6% year-over-year to $131.5 million. These declines temper the otherwise healthy leasing activity observed.

Despite the occupancy and NOI challenges, HIW demonstrated robust leasing momentum, with second-generation leasing activity covering 1.0 million square feet, including 326,000 square feet of new leases. GAAP rent growth was strong at 18.3%, and net effective rents were 21.8% higher than the previous five-quarter average, indicating pricing power. The average in-place cash rent also increased 1.6% per square foot from the prior-year quarter.

The company actively managed its portfolio by acquiring the Legacy Union Parking Garage for $111.5 million and divesting a non-core office building for $16 million. HIW raised its 2025 FFO per share guidance to $3.41-$3.45, which encompasses the Zacks Consensus Estimate of $3.42, signaling cautious optimism. However, this guidance includes an expectation for same-property cash NOI growth to be between -3% and -2%, and year-end occupancy between 85.7% and 86.3%.

HIW maintains a solid liquidity position with over $625 million available, and its net debt-to-adjusted EBITDAre ratio remained stable at 6.4. While HIW's results show some headwinds, peer REITs like BXP and SLG also reported strong leasing activity, suggesting a broader trend of resilient demand for office space despite occupancy pressures in the sector.

Key Decisions for Investors

• Investors should closely monitor HIW's ability to translate strong rent growth and leasing activity into improved occupancy and positive same-property NOI, given the current negative guidance for 2025 NOI growth.
• Evaluate the sustainability of HIW's pricing power, evidenced by 18.3% GAAP rent growth, against the backdrop of declining overall portfolio occupancy and the broader office market trends.
• Consider the implications of the revised 2025 FFO guidance, which, while raised, still projects negative same-property cash NOI growth, and assess the company's strategic portfolio management for long-term value creation.