Highwoods Properties: A Beacon of Resilience in the Office REIT Landscape

In an era marked by economic uncertainty and shifting office dynamics, Highwoods Properties (HIW) has emerged as a standout player in the office REIT sector. The company's second-quarter 2025 leasing surge—750,000 square feet of second-generation leases, including 300,000 square feet of new deals—has positioned it to reclaim occupancy by year-end, fueling optimism about its ability to sustain dividends and grow FFO even as headwinds loom. Let's dissect why this momentum matters and whether HIW's strategy can deliver both defensive stability and growth.

Leasing Momentum: A Catalyst for Occupancy Recovery and NOI Growth

Highwoods' Q2 leasing activity is no mere headline-grabber. The 145,000 square foot lease at Nashville's Symphony Place, which backfilled a major vacancy, exemplifies the company's ability to recycle space efficiently. This deal underscores a broader trend: Highwoods is leveraging its 63% leased $474 million development pipeline to drive $30 million in incremental NOI beyond 2025 forecasts. The fact that four core buildings with elevated vacancy are now targeted for $25 million in NOI growth further highlights management's tactical focus.

This leasing strength is critical. Office REITs face a paradox: rising demand for high-quality space in select markets coexists with broader macro risks like recession fears and remote work trends. Highwoods' BBD (Best Business District) strategy—concentrated in Sunbelt cities like Raleigh, Nashville, and Atlanta—provides a shield against these challenges. These markets boast low office vacancy rates (e.g., Tampa's downtown at 9.8%, among the lowest nationally) and strong job growth, creating a demand floor for Class A office space.

BBD Resilience: A Hedge Against Economic Volatility

The BBD portfolio isn't just about location—it's a playbook for risk mitigation. Unlike office-heavy markets like New York or San Francisco, Sunbelt BBDs are less supply-constrained, with Highwoods' own development pipeline 63% leased before completion. This reduces exposure to overbuilding and keeps occupancy levels buoyant.

CEO Ted Klinck's emphasis on asset recycling—selling non-core properties to fund accretive acquisitions like the $138 million Raleigh Advance Auto Parts Tower—adds another layer of resilience. This strategy not only improves portfolio quality but also maintains liquidity. With $710 million in liquidity and no debt maturities until 2026, Highwoods can weather rate hikes or tenant defaults without compromising its 6.73% dividend yield.

Dividend Sustainability: 32 Years and Counting

Highwoods' dividend streak—32 years uninterrupted—is a testament to its conservative financial discipline. Even as peers cut payouts during the pandemic, HIW maintained its streak by prioritizing debt reduction and liquidity. Today, its $3.31–$3.47 FFO guidance (midpoint up $0.04) reflects confidence in its ability to grow cash flow organically.

The dividend is further insulated by its low leverage (debt-to-EBITDA of ~5.5x) and the BBD portfolio's inherent demand stickiness. Tenants in these markets—often tied to tech, healthcare, or government sectors—are less likely to abandon prime downtown space amid downturns.

Risks and Mitigants: Navigating a Rocky Road

No REIT is immune to macro risks. Rising interest rates could pressure occupancy if remote work trends accelerate, while construction costs (a risk factor cited by Highwoods) could eat into margins. However, the company's low development exposure—only $474 million in a $10.7 billion portfolio—limits cost inflation risks.

Tenant defaults remain a concern, but Highwoods' focus on creditworthy tenants (e.g., S&P 500 firms and local anchors) has kept credit metrics strong. Meanwhile, the 78% leased Glen Lake 3 and 94% leased 2827 Peachtree developments signal solid execution, reducing execution risk.

The Case for HIW: Defensive Growth in a Volatile Market

Highwoods Properties isn't just surviving—it's thriving. Its BBD strategy, liquidity buffer, and dividend discipline make it a rare office REIT capable of defensive stability while delivering high-single-digit FFO growth. While shares are up 22.1% year-to-date, historical backtests reveal that buying HIW on earnings announcement dates and holding for 30 days since 2020 resulted in an average return of -7.97%, with a maximum drawdown of -55.86%. This underscores the risks of short-term trading strategies and reinforces the case for a long-term hold. With its 6.7% yield and $30 million pipeline upside, HIW offers a compelling middle ground for investors seeking office exposure without relying on a full return to pre-pandemic norms.

In a sector rife with uncertainty, this is a play on execution, not speculation.

Final Take: Highwoods Properties (HIW) is a REIT to own for both income and growth investors. Its BBD dominance, robust liquidity, and disciplined strategy make it a top-tier office play in an uneven market. While risks persist, the company's execution to date suggests it can navigate them—and deliver returns—better than most.