Asia FX muted, dollar weakens slightly ahead of Fed rate decision
Introduction & Market Context
Highwoods Properties (NYSE:HIW) continues to execute its proven strategy of focusing on high-quality office properties in growing Sunbelt markets, according to its Q1 2025 investor presentation. The company’s strategic positioning has enabled it to outperform the broader office market, with occupancy rates approximately 700 basis points higher than the U.S. average as of March 31, 2025.
The REIT reported strong Q1 2025 results, with earnings per share of $0.91, significantly exceeding analyst expectations of $0.22. While revenue came in slightly below forecasts at $200.38 million versus an expected $202.95 million, the market responded positively with the stock rising 1.93% following the announcement.
Portfolio Strategy
Highwoods maintains a portfolio of 26.7 million square feet that was 88.1% leased as of March 31, 2025. The company’s properties have an average construction year of 2004, reflecting a relatively modern portfolio compared to many office REITs. More than 95% of the company’s net operating income (NOI) comes from Sunbelt markets, which have demonstrated stronger demographic and economic trends than the national average.
As shown in the following geographic distribution chart, Highwoods has strategically positioned its portfolio across Best Business Districts (BBDs) in the Southeast and Southwest, with a balanced approach to central business districts, suburban, and infill locations:
The company’s focus on Sunbelt markets is supported by compelling demographic and economic data. Between 2010 and 2024, Highwoods’ markets experienced population growth of 1.7% annually, more than double the U.S. average of 0.8%. Office employment in these markets grew at 3.6% annually during the same period, significantly outpacing the national average of 1.9%.
Quarterly Performance Highlights
Highwoods’ Q1 2025 performance demonstrated the resilience of its business model despite broader challenges in the office sector. The company has raised its 2025 FFO outlook to a range of $3.31 to $3.47 per share, an increase of $0.04 at the midpoint from previous guidance. This outlook reflects management’s confidence in continued occupancy improvements and leasing momentum.
CEO Ted Klink emphasized the company’s strategic positioning during the earnings call: "We’re operating in the strongest BBDs in the Sunbelt that have continually proven to be the places where talent and companies want to be."
The company’s tenant base remains well-diversified across industries and markets, limiting concentration risk. The top 10 customers represent 21.9% of annualized GAAP revenue, while the top 20 account for 29.0%. Notably, Highwoods has no exposure to WeWork (OTC:WEWKQ) and less than 1% of total revenues derived from co-working operators.
The following chart illustrates the company’s industry diversification:
Strategic Initiatives
Highwoods continues to execute its capital recycling strategy, acquiring high-quality assets in core markets while divesting non-core properties. In Q1 2025, the company acquired the Advance Auto Parts (NYSE:AAP) Tower in Raleigh, a Class AA office building of approximately 350,000 square feet located in a strong BBD. This acquisition aligns with the company’s strategy of improving portfolio quality and growth potential.
The following image showcases the recently acquired Advance Auto Parts Tower alongside the previously acquired Captrust Tower in Raleigh’s North Hills area:
To fund this acquisition, Highwoods sold three non-core properties in Tampa: Lakepointe One, Lakepointe Two, and Spectrum. These 35-year-old properties were located in non-BBD locations and represented lower-growth assets within the portfolio.
The company has completed $138 million in acquisitions in 2025 and has an outlook for up to an additional $150 million. On the disposition side, Highwoods has completed $145 million in non-core dispositions in 2025 with an outlook for up to an additional $150 million.
Detailed Financial Analysis
Highwoods maintains a strong balance sheet with key metrics as of March 31, 2025, including:
- 42.3% Debt + Preferred as % of Gross Assets
- 6.4x Net Debt to EBITDARE
- 4.5% Weighted Average Interest Rate
- 14.9% Floating Rate Exposure
- Investment grade ratings from Moody’s (Baa2) and S&P Global (BBB-)
The following image highlights the company’s balance sheet strength:
The company’s debt maturity profile is well-structured with no debt maturities through Q1 2026. Highwoods has ample liquidity with $712 million in total existing sources, including $600 million in line of credit availability, $92 million in undrawn availability on construction loans, and $20 million in cash on hand.
Highwoods provides transparent reporting of its operating cash flows, including a clear breakdown of capital expenditures related to building improvements, tenant improvements, and leasing commissions:
Forward-Looking Statements
Highwoods has significant embedded growth potential from several sources, including low-occupied in-service properties, recently completed developments, and developments scheduled for completion in 2025. The company estimates this embedded upside potential at approximately $55 million in additional NOI as these properties stabilize.
The following chart illustrates this embedded growth potential:
The company’s development pipeline represents another growth driver. As of Q1 2025, Highwoods had $474 million invested in in-process developments totaling 1.4 million square feet, with $126 million remaining to fund. These projects are already 63% leased and are expected to generate $40 million in stabilized GAAP NOI upon completion.
Beyond the current pipeline, Highwoods maintains a substantial land bank with an estimated build-out potential of $3.6 billion across its markets, providing long-term development opportunities.
Conclusion
Highwoods Properties’ Q1 2025 presentation demonstrates the company’s continued execution of its proven strategy focused on high-quality office assets in growing Sunbelt markets. Despite challenges in the broader office sector, Highwoods is outperforming market averages in occupancy and maintaining strong financial metrics.
The company’s capital recycling strategy, development pipeline, and embedded growth potential position it well for future growth. With a strong balance sheet, no near-term debt maturities, and ample liquidity, Highwoods has the financial flexibility to pursue strategic opportunities while navigating market uncertainties.
As office market dynamics continue to evolve post-pandemic, Highwoods’ focus on Best Business Districts in high-growth Sunbelt markets appears to be a differentiating factor that has contributed to its relative outperformance. The stock closed at $31.44 on June 18, 2025, up 1.21% for the day, and has traded between $24.19 and $36.78 over the past 52 weeks.
Full presentation:
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.