Highwoods Properties Navigates Mixed Q1: FFO Beats, Revenue Misses, but FFO Guidance Rises Amid Sector Challenges

Highwoods Properties (NYSE: HIW) reported a mixed performance for the first quarter of 2025, with funds from operations (FFO) slightly exceeding analyst expectations but revenue falling short of forecasts. Despite the revenue shortfall, the company raised its full-year 2025 FFO guidance, signaling cautious optimism. However, the results underscore ongoing challenges for office-focused real estate investment trusts (REITs) amid shifting workplace trends and broader sector headwinds.

Q1 Performance: FFO Beats, Revenue Misses

Highwoods reported Q1 2025 FFO of $0.83 per share, narrowly surpassing the consensus estimate of $0.82 per share (a 1.22% positive surprise). This marked a 6.8% year-over-year decline from Q1 2024’s FFO of $0.89 per share, reflecting the challenging macroeconomic environment for office REITs.

Revenue, however, fell short of expectations, totaling $200.38 million—a 1.9% miss versus the $202.95 million consensus. The figure also represented a 5.2% year-over-year drop from Q1 2024’s $211.28 million. Management attributed the revenue shortfall to slower-than-anticipated leasing activity and tenant turnover in certain markets.

Revised 2025 FFO Guidance: A Narrow Win for Optimism

Despite the Q1 revenue miss, Highwoods raised its full-year 2025 FFO guidance to a range of $3.31–$3.47 per share, up from its prior outlook of $3.26–$3.44 per share. This upward revision reflects confidence in cost discipline, improved lease renewals, and a focus on its core BBD markets. The midpoint of the new guidance—$3.39 per share—aligns with the current consensus estimate of $3.35 per share, suggesting analysts view the update as realistic but incremental.

Stock Performance and Sector Context

Highwoods’ shares have underperformed the broader market year-to-date, falling 7.1%, compared to the S&P 500’s 6% decline. The stock’s struggles mirror the challenges facing the office REIT sector, which remains in the bottom 38% of all Zacks industries. This underperformance is driven by concerns over hybrid work models, tenant defaults, and oversupply in non-core office markets.

Insider and Institutional Activity: Mixed Signals

The earnings release highlighted notable investor movements. Representative Jefferson Shreve purchased $100,000 worth of HIW shares in March 2025, while insider David John Hartzell sold 6,173 shares for $205,313. Institutional sentiment was similarly divided: PGGM Investments liquidated its entire 2.89 million-share position (~$88.4 million), whereas Janus Henderson Group boosted its holdings by 512.9% (adding ~$32.6 million). These moves suggest a split between long-term faith in Highwoods’ BBD strategy and near-term caution over sector risks.

Key Risks and Opportunities

1. Leasing Momentum: Highwoods’ ability to secure long-term leases in its BBD markets will be critical. The company’s focus on high-growth cities like Nashville and Raleigh positions it to capitalize on resilient demand.
2. Cost Management: The raised FFO guidance hinges on cost controls, including reduced capital expenditures and operational efficiencies.
3. Sector Sentiment: Office REITs face headwinds as hybrid work persists and tech-driven companies trim office footprints. Highwoods’ narrow geographic focus could be both a strength and a vulnerability if regional economies falter.

Conclusion: A Hold with Cautious Upside

Highwoods’ Q1 results and revised guidance paint a nuanced picture. While FFO resilience and strategic focus offer hope, the revenue miss and sector-wide challenges temper optimism. The stock’s current Zacks Rank of #3 (Hold) reflects this balanced outlook. Investors should monitor:
- Q2 2025 results, where consensus expects FFO of $0.85 per share and revenue of $204.19 million.
- Lease-up activity in BBD markets and tenant retention rates.
- The broader office REIT sector’s performance, as Highwoods’ valuation remains tied to industry trends.

With its revised FFO guidance within striking distance of consensus estimates and its BBD strategy intact, Highwoods retains limited upside potential. However, unless occupancy rates improve significantly or broader economic conditions stabilize, the path to outperformance remains narrow.

In summary, Highwoods is navigating choppy waters with a steady hand, but investors should proceed with caution until clearer signs of sector recovery emerge.