Highwoods Properties: A Strategic Entry Point for Income Investors Amid 7.8% Yield and Leasing Momentum

For income-focused investors seeking high-yield opportunities in the real estate sector, Highwoods Properties, Inc. (HIW) has emerged as a compelling, albeit complex, candidate. As of December 2025, the company's dividend yield stands at 7.82%, a figure that dwarfs the average yields of most major REITs and underscores its appeal to investors prioritizing cash flow. However, the sustainability of this yield-and the broader operational momentum driving it-demands a nuanced analysis.

The Attraction of a 7.8% Yield

Highwoods' current dividend yield of 7.82% represents a significant premium to its five-year average of 6.49%, reflecting both market skepticism and the company's aggressive payout strategy. While this yield is undeniably attractive, it comes with a critical caveat: a payout ratio of 170.94%, which indicates that the company is distributing more in dividends than it earns in net income. This imbalance raises concerns about long-term sustainability, particularly in a high-interest-rate environment where financing costs remain elevated.

Yet, Highwoods' financial health is not entirely precarious. As of Q3 2025, its net debt-to-adjusted EBITDA ratio stood at 6.4 times, a level that, while high, is not uncommon for a REIT with a history of leveraging growth. The company's ability to maintain this leverage profile while navigating a challenging macroeconomic climate will be pivotal.

Operational Momentum: A Counterbalance to Risks

What sets Highwoods apart is its accelerating operational momentum, particularly in the Sun Belt markets, which have become a cornerstone of its strategy. By Q2 2025, the company reported an in-service portfolio occupancy rate of 85.5%, with a leased rate of 88.9%-a sign of strong demand for its premium office spaces. This momentum is further evidenced by 920,000 square feet of second-generation leasing in Q2 2025 alone, which bodes well for occupancy improvements by late 2025.

The company's leasing success extends beyond volume. In Q3 2025, Highwoods secured over , with net effective rents 21.8% higher than the five-quarter average. This pricing power, combined with GAAP rent growth of 12.2% and net effective rents up 3.6% year-over-year, highlights its ability to extract value from its portfolio even as it repositions underperforming assets.

Strategic Resilience in a Challenging Landscape

Despite a in Q3 2025, driven by temporary occupancy dips and strategic portfolio shifts, Highwoods has demonstrated resilience. The company raised its 2025 Funds From Operations (FFO) outlook to $3.37–$3.45 per share, a range that, if achieved, would provide a critical buffer for sustaining its dividend. This confidence is rooted in its aggressive leasing pipeline and a projected recovery to by year-end 2025.

The Case for Strategic Entry

For income investors, the key question is whether Highwoods' operational strengths can offset its financial risks. The 7.8% yield is undeniably enticing, but it must be weighed against the 170.94% payout ratio and 6.4x leverage. However, the company's Sun Belt focus, pricing power, and aggressive leasing activity suggest that its operational momentum is not a short-term anomaly but a structural trend.

Investors willing to tolerate near-term volatility may find Highwoods' current valuation-a blend of high yield and improving fundamentals-appealing. The company's ability to raise FFO guidance and secure premium rents indicates that its cash flow base is more resilient than its payout ratio suggests.

Conclusion

Highwoods Properties presents a high-risk, high-reward scenario for income investors. While its 7.8% yield is unsustainable in a vacuum, the company's operational momentum-driven by Sun Belt demand, strong leasing activity, and rent growth-provides a foundation for maintaining its payout. For those with a long-term horizon and a tolerance for volatility, Highwoods could represent a strategic entry point to capitalize on its yield and growth potential.