Highwoods Properties Q1 2025: Unpacking Key Contradictions in Acquisition Strategy, Leasing Activity, and Market Trends

Acquisition strategy and market focus, leasing activity and market share, rental rate strength and market conditions, occupancy outlook and leasing activity, and mark-to-market rent trends are the key contradictions discussed in Highwoods Properties' latest 2025Q1 earnings call.



Investment and Acquisitions:
- Highwoods Properties sold $1.5 billion of noncore properties since 2019, recoupling $1.8 billion in commute-worthy replacements.
- The company acquired the $138 million Advanced Parts Tower, a Class AA building in Raleigh, with a leverage-neutral rotation of capital.
- Investment activity was focused on selling older, capital-intensive properties in non-BBD locations and rotating into high-quality buildings in desirable locations.

Leasing and Occupancy Trends:
- Highwoods signed 700,000 square feet of second-generation office space leases, with strong leasing economics achieving net effective rents over 20% higher than the prior five-quarter average.
- The company's occupancy is expected to grow over the next few years, driven by a healthy leasing backlog and manageable lease roll.
- The strategy to improve portfolio quality and drive financial results involved a focus on lease-up efforts in core buildings and developments.

Financial Performance and Guidance Update:
- Highwoods delivered FFO of $0.83 per share, generating healthy cash flow, despite occupancy declines due to known customer move-outs.
- The company raised the midpoint of its 2025 FFO outlook by $0.04 to a range of $3.31 to $3.47 per share.
- The outlook update reflects the partial-year impact from the Advanced Auto Parts Tower acquisition and operations.

Development Pipeline and Speculative Activity:
- Highwoods placed in service 227 Peachtree in Atlanta, a development with 58% pre-leasing, contributing to a $474 million development pipeline now 63% leased.
- The company's outlook includes potential for $30 million in NOI growth above the 2025 outlook from stabilized developments.
- Speculative development deals remain challenging to pencil due to high construction costs, but the company is engaged in conversations with potential build-to-suit prospects.