• FFO (Funds From Operations): $0.83 per share for Q1 2025.
• Net Income: $97.4 million or $0.91 per share.
• Investment Activity: $145 million from non-core dispositions recycled into a $138 million acquisition.
• Development Pipeline: $474 million, 63% leased, projected to drive $30 million of incremental NOI.
• Leasing Activity: 700,000 square feet of second-gen office space leased, with net effective rents over 20% higher than the prior five-quarter average.
• Occupancy: Dipped due to known customer move-outs, with expectations for growth over the next few years.
• Liquidity: $710 million of available liquidity at the end of the quarter.
• Debt Maturities: No debt maturities until May 2026.
• 2025 FFO Outlook: Raised to $3.31 to $3.47 per share, a $0.04 increase at the midpoint.

• Warning! GuruFocus has detected 11 Warning Signs with HIW.

Release Date: April 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Highwoods Properties Inc (NYSE:HIW) reported a strong quarter with financial results exceeding original expectations.
• The company successfully executed a capital rotation strategy, acquiring a high-quality building in Raleigh with long-term growth potential.
• Leasing activity was robust, with 700,000 square feet of second-gen office space leased, including significant new leases.
• The development pipeline is progressing well, with 63% of the $474 million pipeline leased, up 5% from the previous quarter.
• The company raised its 2025 FFO outlook midpoint by $0.04, reflecting confidence in future growth and strong financial performance.

Negative Points

• Despite strong leasing activity, occupancy dipped due to known customer move-outs, which may impact short-term financial metrics.
• The macroeconomic environment remains uncertain, with potential impacts from government cutbacks, global tariffs, and a looming recession.
• Leasing capital expenditures are expected to be higher over the next several quarters, potentially impacting cash flow.
• The company does not expect to announce any new development projects this year due to high construction costs and elevated vacancy levels.
• There is a reliance on asset recycling to drive growth, which may pose risks if market conditions change or if suitable acquisition opportunities are not available.

Q & A Highlights

Q: Ted, would you do any significant level of incremental dispositions from here without a corresponding acquisition lined up? A: Theodore Klinck, President, CEO, and Director, responded that they plan to continue recycling non-core assets to create dry powder, regardless of whether they have a corresponding acquisition lined up.

Q: Are you sensing any reluctance from tenants to engage on the 2026 expirations early due to macroeconomic uncertainty? A: Theodore Klinck stated that they have not seen any impact on leasing activity or deal flow due to economic uncertainty, and their leasing agents report no slowdown in activity.

Q: Is the second quarter '26 occupancy on the two Alliance Center and Symphony Place leases due to expiration of their existing leases, or is there a more extensive timeframe for improvements? A: Theodore Klinck explained that they are currently doing improvements, and the new customer will take occupancy in the second quarter of next year.

Q: How significant is the CapEx and TI's for the leasing done thus far in April? A: Brendan Maiorana, CFO, EVP - Finance, Treasurer, noted that the TI is in line with market expectations for long-term leases, and they expect leasing capital to be higher over the next several quarters due to occupancy build.

Q: Can you give us a sense of how the cadence of occupancy and FFO growth will go based on your updated guidance? A: Brendan Maiorana indicated that they expect growth to occur late in the year, with some movement in occupancy trends over the second and third quarters, maintaining a year-end outlook of 86% to 87% occupancy.

Q: Have you seen any tenants shift relocation plans or expansion plans with a preference for short-term renewals due to market uncertainty? A: Brian Leary, COO, EVP, stated that they have not seen a significant shift towards short-term renewals, and expansions are outpacing contractions, indicating strong customer commitment.

Q: How do you see elevated leasing capital impacting FFO or cash flow, and are you comfortable with the dividend level? A: Brendan Maiorana explained that while leasing capital will be higher, they have generated over $150 million of free cash flow above the dividend since the pandemic, and they are comfortable with the dividend level.

Q: Can you comment on the rents on the new lease at Symphony Place compared to previous rents? A: Theodore Klinck mentioned that the rents on the new lease at Symphony Place are essentially flat compared to previous rents.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.