Highwoods (HIW) Q1 2026 Earnings Transcript

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DATE

1. April 2026

CALL PARTICIPANTS

- Präsident, Chief Executive Officer und Director — Theodore J. Klinck

- Executive Vice President und Chief Operating Officer — Brian M. Leary

- Executive Vice President und Chief Financial Officer — Brendan Maiorana

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Full Conference Call Transcript

Theodore J. Klinck: 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 and an 800-basis-point increase in our leased 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 BBD 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 have not diminished their appetite for space and are making long-term commitments to their in-office strategies, and activity across our portfolio, our markets, and our BBDs is strong. Leasing was solid in the quarter.

Our leasing pipeline remains robust. High-quality space across our BBDs is dwindling, and there is little to no new supply expected during the foreseeable future. This flight-to-quality dynamic creates a strong backdrop for gains and rent growth, both of which we experienced in the first quarter. Additionally, creditworthy customers are willing to make long-term commitments, as evidenced by our weighted average lease term on second-generation lease volume of 7.5 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 in BBD 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-generation leases, including over 300,000 square feet of new leases. We delivered GAAP 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, outpaced contractions at a ratio of nearly two to one.

In addition, we signed 107,000 square feet in first-generation leases across our development properties. Customers and prospects recognize that blocks of high-quality, BBD-located office space with well-capitalized owners are diminishing across our footprint, which gives us strong pricing power in the best submarkets. We placed in service more than $200 million of 87% leased development properties during the quarter. GlenLake III, comprising 203,000 square feet of office and 15,000 square feet of retail, is now 94% leased. Across the street, we delivered GlenLake II Retail, which is 100% leased to Crooked Hammock Brewery. The addition of 24,000 square feet of food and beverage options elevates GlenLake’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 in Dallas’ Legacy BBD. 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 leased rate now 83%, up from 75% last quarter and 62% twelve months ago. We have strong prospects to bring our lease rate at 23 Springs into the 90s. In Tampa’s Westshore BBD, our 143,000-square-foot Midtown East development is now 95% leased, up from 76% last quarter and 39% twelve 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 are 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 is still early, and it is hard to say whether any of these discussions will result in new projects, but the increased interest is encouraging and signifies 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 common stock on a leverage-neutral basis. We continue to evaluate acquisition opportunities and highly pre-leased developments; the repurchasing of 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-BBD 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 four areas, combined with a strong fundamental backdrop in our core BBDs 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?

Brian M. Leary: 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 Properties, Inc. portfolio, this is the Highwoods Properties, Inc. team, and these are our Sunbelt markets and BBDs. Starting with Dallas, the Metroplex remains one of the country’s premier destinations for corporate headquarters and expansions, which should not be a surprise at this point considering it is Site Selection Magazine’s number one city for headquarter relocations and is in the state Chief Executive Magazine has deemed as the best for business 21 consecutive years. From 2018 through 2024, Dallas landed roughly 100 headquarters, 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 & Wakefield, DFW recorded 117,000 square feet of positive net absorption in 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 BBDs are squarely in the path of demand. The mark-to-market we are realizing via second-generation leasing, both at McKinney & Olive and The Terraces, is significant, generating GAAP rent spreads of 27%. Turning to Charlotte, the city is increasingly recognized as a strategic hub that is being validated by headline corporate decisions. Among the 104 metros that Cushman & 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’s SouthPark BBD, where we have almost 800,000 square feet, JPMorgan 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 planned 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 their second U.S. headquarters, creating 2,000 jobs by 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 Class A buildings. In Uptown, the denominator is shrinking as millions of square feet of office space are being taken out of inventory for conversions to residential, hotel, and retail uses. Strong demand for high-quality space and limited new supply are yielding a landlord-favorable environment for driving leasing fundamentals. Our Charlotte assets are directly benefiting from this demand, which is why we are seeing strong rent roll-ups and net effective rent growth in Charlotte.

In Raleigh, the long-term story of in-migration and organic growth remains intact. Recent census estimates show the Raleigh metro is one of the 10 fastest growing in the country between 2024 and 2025, and statewide, North Carolina ranked first in domestic net migration and third in overall population gain for the same period, adding an estimated 146,000 residents. CBRE’s tech report noted that the Raleigh area also produces nearly 5,000 tech graduates annually, reinforcing a sustainable pipeline of skilled workers. Office fundamentals reflect that strength in the best business districts, and our team was busy for the quarter, signing over 200,000 square feet of second-generation space.

Our two new developments at GlenLake offer a mix of uses and are 95% leased, and Block 83, our recent mixed-use JV acquisition, which is 97% leased in Raleigh’s CBD, is directly aligned with where both in-migration and corporate demand are strongest. Finishing in Nashville, where strong population growth and a diversified economy continue to attract brand-name employers, just last month Starbucks announced a $100 million plan to open a Southeast corporate office in Downtown Nashville for 2,000 employees, with some relocating from Seattle and the balance of new hires in Nashville.

Office data for the first quarter shows that demand is focused on newer or newly amenitized Class A nodes, and our 287,000 square feet of quarterly leasing with a weighted average lease term of 9.8 years, and cash and GAAP rent spreads of 9.4% and 26.5%, respectively, bears witness to this data. Across our footprint, we are aligning capital with the metros and submarkets that continue to win people, jobs, and corporate investment. We are making sure our portfolio and people are prepared to deliver commute-worthy experiences to our customers and their teams. Our success this quarter supports this strategy, and we are confident it will continue to serve us well. Brendan?

Brendan Maiorana: Thanks, Brian. In the first quarter, we delivered net income of $31.3 million, or $0.29 per share, and FFO of $94 million, or $0.84 per share. The quarter included a $17 million property sale gain from our disposition in Richmond that was included in net income but not included in FFO. During the quarter, we received a term fee at an unconsolidated JV for a net $2.2 million, or $0.02 per share, from a customer moving from McKinney & Olive to 23 Springs, and we sold our interest in a third-party brokerage services firm, resulting in a $1.4 million gain. These two items were included in FFO and were factored into our original FFO outlook.

Otherwise, there were no unusual items in the quarter. You may have noticed some minor changes to our supplemental package we released yesterday that we believe will make it easier to derive our share of joint venture NOI. We also broke out Dallas as its own market now that we have three in-service properties in Dallas, which will increase to four upon stabilization