Highwoods Properties Q2 Earnings Call Highlights

Highwoods Properties NYSE: HIW reported second-quarter funds from operations of $0.90 per share and raised its full-year 2026 FFO outlook, citing stronger leasing, rising occupancy and progress in recycling capital into future investment opportunities.

The office REIT reported net income of $93.5 million, or $0.85 per share, and FFO of $100.7 million, or $0.90 per share, for the quarter.

Results included a $0.035-per-share gain from the sale of a non-core Richmond land parcel held through a 50/50 joint venture.

Chief Executive Officer Ted Klinck said the company produced more than 1 million square feet of second-generation leasing during the quarter, including 326,000 square feet of new leases, along with 63,000 square feet of first-generation leasing in its development pipeline.

Cash rent spreads exceeded 3%, while GAAP rent spreads topped 20%.

Net effective rents were 8% above Highwoods’ prior five-quarter average and represented the company’s second-highest level historically, according to Klinck.

Highwoods’ occupancy rose 70 basis points sequentially in the second quarter, or 110 basis points when adjusted for properties that were owned and in service throughout the quarter.

The company expects occupancy to continue improving during the second half of 2026.

Chief Operating Officer Brian Leary said the company signed more than 120 leases, including 41 new agreements totaling 326,000 square feet.

He attributed leasing conditions to limited new office supply and declining availability of high-quality buildings in the company’s best business districts across the Sun Belt.

Leary said CBRE data showed the national office construction pipeline had declined to 6.4 million square feet, its lowest level since 1996.

Highwoods estimates vacancy in high-quality properties within its core business districts is at least 5 percentage points below reported overall submarket vacancy rates.

In Charlotte, Highwoods reported cash rent roll-ups of 10%, GAAP roll-ups of 29%, and net effective rents above $31 per square foot in its SouthPark and Uptown portfolio.

In Nashville, the company completed 241,000 square feet of leasing, with about half representing new business.

Management said the activity should support occupancy gains into next year.

In Dallas, Highwoods said its Uptown and Preston Center properties benefited from submarket vacancy below 5%, generating double-digit cash and GAAP rent spreads and net effective rents above $50 per square foot.

Klinck said landlord pricing power was strongest in Dallas, Charlotte and Nashville, though Buckhead in Atlanta and Westshore in Tampa were also showing improved economics.

He estimated that Highwoods was able to push rents across roughly 60% to 65% of its portfolio, though conditions vary by market and submarket.

Highwoods’ development pi...