Highwoods Properties: Strategic Moves in Challenging Market Environment

Highwoods Properties, Inc. (NYSE:HIW) has recently announced a series of investment and financing transactions that closed during the fourth quarter of 2024 and early 2025. These strategic moves position the company to take advantage of market dislocations and opportunistic investments in the office real estate sector, given the challenging market environment. Here's a closer look at these transactions and their implications for Highwoods Properties.

Disposition of Non-Core Assets

Highwoods Properties sold non-core buildings in Raleigh and Tampa for a combined gross proceeds of $166.4 million. These properties, encompassing 786,000 square feet and 88% occupied, were projected to generate $13.6 million of GAAP net operating income and $13.0 million of cash net operating income in 2025. The implied cap rate of approximately 7.8% suggests that these assets were likely mature properties with growth potential, making their disposition timely in the current market environment.

This strategic move allows Highwoods to:

* Optimize its portfolio by disposing of mature properties with limited future upside.
* Generate significant proceeds ($166.4 million) to reinvest in higher-quality assets.
* Reduce exposure to non-core assets that may face headwinds in the challenging office market environment.

Acquisition of Century Center Land

Highwoods acquired fee simple title to the land underneath its Century Center assets for $50.6 million. This acquisition provides the company with:

* Complete control over 1.7 million square feet of office space and 13 acres of developable land.
* More long-term flexibility and certainty for future redevelopment or repositioning opportunities in the growing Chamblee/N. Druid Hills submarket of Atlanta.
* The ability to eliminate future escalating ground rent obligations.

Equity Raise

Highwoods raised $51.3 million through the sale of 1.59 million shares of common stock at an average price of $32.71 per share. This equity raise:

* Strengthens the company's balance sheet.
* Provides dry powder for future opportunities, enabling the REIT to act opportunistically in 2025.
* Allows Highwoods to accumulate nearly $220 million in deployable capital, which can be used to take advantage of distressed office assets at attractive valuations.

These transactions demonstrate Highwoods' conservative yet opportunistic approach to navigating the current market cycle. By focusing on balance sheet strength and portfolio quality improvement, the company is well-positioned to capitalize on market dislocations and make strategic investments in the office real estate sector. As Ted Klinck, President and Chief Executive Officer, stated, these moves further bolster the company's already strong balance sheet and create dry powder for future external growth opportunities in 2025.