Highwoods Properties Q1 2025 Earnings: Revenue Misses, But FFO Beats and Strategic Momentum Ahead

Highwoods Properties (NYSE: HIW) delivered mixed results in its Q1 2025 earnings, with revenue falling short of expectations while Funds from Operations (FFO) narrowly beat estimates. Despite a 5.2% year-over-year revenue decline to $200.4 million (vs. FactSet’s $201.1 million estimate), the company’s FFO of $0.83 per share edged ahead of the $0.82 consensus. This performance underscores a challenging near-term environment for office REITs, even as Highwoods positions itself for recovery through strategic initiatives.

Revenue Stumbles Amid Sector Headwinds

The revenue miss reflects broader challenges in the office sector, where Highwoods has been navigating tenant relocations and market volatility. Year-over-year, revenue dropped from $211.28 million in Q1 2024, signaling lingering impacts from pandemic-era office demand shifts. Notably, occupancy rates dipped to ~85% from 87.1% in Q4 2024—part of a “temporary trough” expected to bottom in early 2025 before rebounding to 86–87% by year-end. This occupancy dip, driven by well-telegraphed tenant move-outs in key markets like Raleigh and Nashville, weighed on short-term cash flows.

However, Highwoods emphasized that leasing momentum remains strong, with $1 billion in second-generation leases signed in 2024 and a robust pipeline of new deals. The company’s focus on high-quality Business Boundary District (BBD) markets—such as Dallas, Orlando, and Tampa—has also insulated it from broader office sector declines, as these locations remain attractive to employers seeking talent and infrastructure.

FFO Resilience and Balance Sheet Strength

While revenue stumbled, Highwoods’ FFO beat highlights operational discipline. The $0.83 per share result outperformed estimates by 1.22% and aligns with the company’s track record of meeting or exceeding FFO guidance in three of the past four quarters. Management also underscored debt-to-EBITDA stability, maintaining the ratio at 5.8x—within its 6.0x target—despite a $215 million equity raise in late 2024/early 2025. This liquidity boost supports strategic moves like $150 million in non-core asset sales and development projects such as Dallas’ 23Springs and Tampa’s Midtown East, which could add $20 million in annual NOI upon stabilization.

Highwoods (HIW) stock price vs S&P 500 YTD 2025

Institutional Crosscurrents and Insider Signals

Institutional investors sent mixed signals about HIW’s prospects. Major holders like PGGM Investments and Franklin Resources reduced stakes by 100% and 36.8%, respectively, while Janus Henderson Group surged its position by 512.9%. This divergence may reflect near-term skepticism about office REITs versus long-term confidence in Highwoods’ BBD-focused strategy. Meanwhile, Rep. Jefferson Shreve’s $100,000 HIW purchases in early 2025 add a minor bullish note, though insider selling (e.g., David Hartzell’s $205k sale) hints at cautious sentiment among some insiders.

The Path to Recovery: Leasing Pipeline and NOI Growth

Highwoods’ outlook hinges on executing its leasing and development roadmap. Key positives include:
- Occupancy Recovery: The 86–87% year-end target assumes strong lease commencements in underoccupied buildings, which collectively hold $25 million in stabilized NOI upside.
- Same-Store NOI Outlook: A projected -2% to -4% decline in 2025 reflects the occupancy trough but sets the stage for rebounds in 2026+ as rollover exposure dwindles.
- Capital Allocation: Proceeds from asset sales and equity raises will fund accretive acquisitions and developments, boosting future NOI.

Risks and Considerations

• Office Sector Uncertainty: Despite Highwoods’ BBD focus, broader office demand risks linger. Rising interest rates or a tech sector slowdown could delay tenant decisions.
• Near-Term NOI Drag: The four underperforming buildings and incomplete developments (e.g., Raleigh’s GlenLake Three) will suppress 2025 NOI growth.

Conclusion: A Hold with Long-Term Upside

Highwoods’ Q1 results paint a picture of short-term pain for long-term gain. While revenue and same-store NOI face headwinds in 2025, the company’s occupancy recovery trajectory, robust leasing pipeline, and disciplined balance sheet position it to rebound strongly by 2026. With $3.35 FFO per share projected for 2025 and a $30.67 average 12-month price target, HIW merits a Hold rating for now, with upside potential as recovery signs solidify.

Highwoods Properties FFO per share (2023–2025E)

Investors should monitor lease commencements in Q3/Q4 2025 and occupancy trends as key catalysts. For those willing to ride out the near-term dip, Highwoods’ focus on premium office markets and development upside offers a compelling long-term story.