Highwoods Props (NYSE:HIW) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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The full earnings call is available at https://events.q4inc.com/attendee/653907737
Summary
Highwoods Properties Inc reported strong leasing activity, increasing its leased rate by 50 basis points for in-service properties and 800 basis points for development properties.
The company invested $108 million in properties in Dallas and Raleigh while selling $42 million of non-core properties in Richmond, improving portfolio quality.
FFO was reported at $0.84 per share, and the company maintained its annual outlook, with expectations of significant NOI and cash flow growth as occupancy increases.
Highwoods Properties Inc plans to sell $200 million of additional non-core assets by mid-year and may use proceeds for share buybacks or further investments.
Management highlighted strong leasing performance in key markets like Dallas and Charlotte, driven by favorable demographic trends and limited new office supply.
Full Transcript
OPERATOR
Good morning and welcome to the Highwoods Properties Inc first quarter 2026 earnings call. All participants are in a listen only mode. After the speaker’s remarks, we will conduct a question and answer session. To ask a question at this time, you’ll need to press STAR followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Brendan Mayarana, Executive Vice President and Chief Financial Officer. Thank you. Please go ahead.
Brendan Mayarana (Executive Vice President and Chief Financial Officer)
Thank you operator and good morning everyone. Joining me on the call this morning are Ted Klink, our Chief Executive Officer and Brian Leary, our Chief Operating Officer. For your convenience, today’s prepared remarks have been posted on the web. If you have not received yesterday’s earnings release or supplemental, they’re both available on the Investors section of our website at highwoods.com on today’s call, our review will include non GAAP measures such as FFO, NOI and EBITDAIR. The release and supplemental include a reconciliation of these non GAAP measures to the most directly comparable GAAP financial measures. Forward looking statements made during today’s call are subject to risks and uncertainties. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings. As you know, actual events and results can differ materially from these forward looking statements and the Company does not undertake a duty to update any forward looking statements. With that, I’ll turn the call over to Ted.
Ted Klink (Chief Executive Officer)
Thanks Brendan and good morning everyone. We had an excellent quarter executing on our key initiatives. Leasing volume was strong across our in service and development properties. This is clear from the 50 basis point increase in our leased rate on our in service portfolio. An 800 basis point increase in our lease rate on our developments. Both of these will deliver meaningful upside in NOI cash flow and FFO over the next few years as occupancy ramps. During the quarter we invested 108 million in best in class commute worthy properties in locations in Dallas and Raleigh through joint ventures and sold 42 million of non core properties in Richmond. All of this activity improves our portfolio and further cements the foundation for pushing our growth rate and cash flows meaningfully higher and will result in long term value creation for our shareholders. Even with our strong performance in the quarter, we recognize the broader narrative that advances in AI could reshape the workforce and therefore affect long term office demand. The range of potential outcomes is wide and varied and at this point there are many unknowns. What we do know however is that customers and prospects haven’t diminished their appetite for space and are making long term commitments to their in office strategies. Activity across our portfolio, our markets and our is strong. Leasing was solid in the quarter. Our leasing pipeline remains robust, high quality space across our is dwindling and there’s little to no new supply expected during the foreseeable future. This flight to quality dynamic creates a strong backdrop for occupancy gains and rent growth both of which we experienced in the first quarter. Additionally, credit worthy customers are willing to make long term commitments as evidenced by our weighted average lease term on second gen lease volume of seven and a half years more than one year longer than our recent average lease term. Further, demographic trends across our footprint are favorable with business relocations and expansions reaccelerating driving healthy population and job growth. We firmly believe high quality commute worthy properties and locations owned by well capitalized landlords are best positioned to capture increasing demand and improving economics. Turning to the quarter, we delivered solid financial performance with FFO of $0.84 per share and we maintained our outlook for the year. Our leasing performance was Excellent. We signed 958,000 square feet of second gen leases including over 300,000 square feet of new leases. We delivered gap rent growth of 19.4% and cash rent growth of 4.8%. Net effective rents were the second highest in company history and 9% higher than the prior five quarter average expansions which we include as renewals outpace contractions at a ratio of nearly 2 to 1. In addition, we signed 107,000 square feet in the first gen leases across our development properties. Customers and prospects recognize the blocks of high quality located office space with well capitalized owners are diminishing across our footprint which gives us strong pricing power in the best sub markets. We placed in service more than 200 million of 87% leased development properties during the quarter. Glen Lake 3, which comprises 203,000 square feet of office and 15,000 square feet of retail is now 94% leased. Across the street we delivered Glen Lake 2 retail which is 100% leased to Crooked Hammock Brewery. The addition of 24,000 square feet of food and beverage options elevates Glen Lake’s offerings and complements the nearly 1 million square feet of office we have here. This has supported our ability to push rents across this park in West Raleigh. We also placed in Service Granite Park 6 and Dallas’s Legacy. This 422,000 square foot best in class office property is 80% leased. We also made strong progress leasing up our two remaining development properties 23 Springs, our 642,000 square foot development project in Uptown Dallas continues to garner strong activity with the least rate now 83% up from 75% last quarter and 62% 12 months ago. We have strong prospects to bring our leased rate at 23 Springs into the 90s. In Tampa’s West Shore, our 143,000 square foot Midtown east development is now 95% leased, up from 76% last quarter and 39% 12 months ago. The office component at Midtown east is 100% leased on a combined basis. The properties placed in Service during the first quarter and in our remaining development pipeline for 86% leased but only 48% occupied. As the leases commence, we will capture significant growth in NOI cash flow and FFO. We are starting to receive interest from build to suit and sizable anchor prospects for potential new development. It’s still early and it’s hard to say whether any of these discussions will result in new projects, but the increased interest is encouraging and signifies the limited inventory companies face when searching for large blocks of high quality space. On the disposition front, we sold a non core portfolio in Richmond for 42 million. As reflected in our outlook, we expect to sell roughly 200 million of additional non core assets by the middle of this year and are marketing other assets for sale. We believe we will be able to redeploy capital from non core asset and land sales on a leverage neutral basis that will further strengthen our cash flows and result in higher growth. As we announced last week, we may also use non core disposition proceeds to repurchase up to 250 million of outstanding shares of our common stock on a leverage neutral basis. We continue to evaluate acquisition opportunities and highly pre leased developments, but repurchasing our shares is another capital deployment option we now have in our arsenal. Before turning the call over to Brian, I want to reiterate the priorities we have highlighted over the past few years that will drive long term value creation for our shareholders. First, we will continue to drive occupancy towards stabilized levels in our operating portfolio. Second, we will deliver and stabilize our development pipeline. Third, we will improve our portfolio quality and long term growth rate by recycling out of non core capex intensive assets in non locations and invest in properties with better cash flows and higher long term growth rates. And fourth, we will do all this while maintaining a strong and flexible balance sheet. We made meaningful progress on each of these priorities during the first quarter. We believe the focus on these 4 areas combined with a strong fundamental backdrop in our core due to the healthy demand and limited new supply will drive significant growth in cash flow and long term value over the next several years.
Brian Leary (Chief Operating Officer)
Brian thanks Ted and good morning everyone. Our operating results continue to reflect the advantage of owning commute worthy amenitized assets in the best business districts of high growth Sunbelt metros. Fundamentals across our markets continue to improve as evidenced by vacancy rates and sublease space. Declining rents are up which combined with steady concession packages has resulted in higher net effective rents. As far as supply goes, the best of the best and the best of the rest are in high demand. With office construction at historic lows or non existent in many markets, new office inventory is in scarce supply with demolitions outpacing deliveries nationwide. The flight to quality has become in many cases an all out sprint to quality with users proactively inquiring for early extensions to lock in location and terms. A common theme across our markets is that office rents pale in comparison to the investment customers have in their people and that exceptional environments and experiences yield superior results when their people are in the office and being better together. Customers are choosing well located, highly amenitized Class A buildings with well capitalized owners and customer centric operations and they are willing to pay for it. They are moving to metros that continue to win people and companies with the highest quality of life and most business friendly outlooks. This is the Highwoods Portfolio. This is the Highwoods team and these are our Sunbelt markets and BBDss. Starting with Dallas, the Metroplex remains one of the country’s premier destinations for corporate headquarters and expansions, which shouldn’t be a surprise at this point considering it is Site Selection Magazine’s number one city for headquarter relocations and as in the state Chief Executive Magazine has deemed as the best for business 21 consecutive years from 2018 through 2024, Dallas landed roughly 100 headquarter relocations, with 11 more in 2025. The region continues to attract diverse firms across financial and professional services, advanced manufacturing, logistics and life sciences seeking a central location, business friendly environment and a deep labor pool. That macro story is consistent with the office fundamentals you see in the Q1 broker data. According to Cushman and Wakefield, VFW recorded 117,000 square feet of positive net absorption in the first quarter of 2026, its fifth consecutive positive quarter, with nearly 340,000 square feet of positive absorption in Class A. As Class B continues to shed space, our Dallas portfolio is in Uptown, Legacy and Preston center which is the tightest submarket in the region with less than 6% vacancy and is home to one of our latest acquisitions, the terraces. These BBDss are squarely in the path of demand. The mark to market we’re realizing via second generation leasing both at McKinney and Olive and the Terraces is significant, generating gap rent spreads of 27%. Turning to Charlotte, the city is increasingly recognized as a strategic hub that’s being validated by headline corporate decisions. Among the 104 metros that Cushman and Wakefield tracks, Charlotte was number one for job growth. To that end and subsequent to our most recent earnings call in February, three global financial institutions have made major new job announcements already with an established home in Charlotte South Park DBD, where we have almost 800,000 square feet. JP Morgan recently announced plans for an eventual 1,000 job regional hub with 400 of those to be hired by 2028. Two new entries to the market include Capital Group’s Plan New Home in Uptown with 600 new employees and after a nationwide search, Sumitomo Mitsui Banking Group, one of Japan’s largest banks, selected Uptown as well for a second US headquarters, creating 2,000 jobs by the end of 2032, with an average salary for these 2,000 jobs projected to be over $165,000 a year. This macro backdrop aligns perfectly with Q1 office fundamentals. CBRE noted approximately 410,000 square feet of positive net absorption in the first quarter and total leasing volume of roughly 1.4 million square feet up nearly 74% year over year, with about 70% of that volume in …
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