10-K: Highwoods Properties 2025 Annual Report: Mixed Results

Highwoods Properties reports a decrease in occupancy and rental revenues for 2025, alongside strategic acquisitions and dispositions, with a focus on Best Business Districts.

Summary

• Occupancy in the office portfolio decreased from 87.1% as of December 31, 2024, to 85.3% as of December 31, 2025.
• Rental and other revenues were $19.8 million, or 2.4%, lower in 2025 compared to 2024, primarily due to property dispositions and lower consolidated same property revenues.
• Net income increased to $162.65 million in 2025 from $104.25 million in 2024.
• Funds from Operations (FFO) decreased to $387.34 million in 2025 from $393.70 million in 2024.
• Consolidated same property Net Operating Income (NOI) was $9.4 million, or 1.8%, lower in 2025 compared to 2024.
• The company acquired 6HUNDRED (411,000 sq ft office building in Charlotte for $193.4 million), Legacy Union parking garage (Charlotte for $110.2 million), and Advance Auto Parts Tower (346,000 sq ft office building in Raleigh for $137.9 million) during 2025.
• Seven buildings and land parcels were sold in Atlanta, Richmond, Tampa, Raleigh, Pittsburgh, and Orlando for an aggregate sales price of $205.7 million, resulting in aggregate net gains on disposition of property of $107.1 million.
• An $8.8 million impairment charge was recorded in 2025 for two non-core, out-of-service assets at Century Center in Atlanta.
• The Operating Partnership issued $350.0 million aggregate principal amount of 5.350% notes due January 2033.
• A $200.0 million unsecured bank term loan was modified to extend its maturity date from May 2026 to January 2029.
• A cash dividend of $0.50 per share of Common Stock was declared on January 29, 2026, payable on March 10, 2026.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing with a cautious sentiment due to declining occupancy, lower revenues, and decreased FFO, indicating ongoing challenges in the office real estate market. While strategic acquisitions and higher GAAP rents on new leases show some resilience, the overall financial performance metrics and stock underperformance relative to benchmarks suggest headwinds.

Positives

• Net income increased significantly to $162.65 million in 2025 from $104.25 million in 2024.
• Gains on disposition of property were $107.15 million in 2025, a $60.3 million increase compared to $46.82 million in 2024.
• Successfully acquired high-quality office properties in Best Business Districts (BBDs) in Charlotte and Raleigh, totaling 757,000 square feet.
• Maintained a conservative and flexible balance sheet with ample liquidity, including $46 million of existing cash and $579.9 million unused capacity on the revolving credit facility as of January 30, 2026.
• Extended the maturity of a $200.0 million unsecured bank term loan from May 2026 to January 2029, enhancing financial flexibility.
• Issued $350.0 million in 5.350% notes due January 2033, strengthening long-term financing.
• Annual combined GAAP rents for new and renewal leases signed in the fourth quarter of 2025 were $35.02 per rentable square foot, representing a 15.4% increase compared to previous leases in the same office spaces.
• The average annual employee turnover rate over the past three years was 16%, substantially lower than the average national industry turnover rate of 22% reported by the Bureau of Labor Statistics.
• No debt is scheduled to mature prior to 2027, providing stability in the near term.
• Management concluded that the Company's internal control over financial reporting was effective as of December 31, 2025, with an unqualified opinion from Deloitte & Touche LLP.

Negatives

• Occupancy in the office portfolio decreased from 87.1% as of December 31, 2024, to 85.3% as of December 31, 2025.
• Rental and other revenues were $19.8 million (2.4%) lower in 2025 compared to 2024, primarily due to property dispositions and lower consolidated same property revenues.
• Consolidated same property Net Operating Income (NOI) was $9.4 million (1.8%) lower in 2025 compared to 2024.
• Funds from Operations (FFO) decreased from $393.70 million in 2024 to $387.34 million in 2025.
• An $8.8 million impairment charge was recorded in 2025 for two non-core, out-of-service assets in Atlanta.
• Interest expense was $5.2 million (3.6%) higher in 2025 compared to 2024, primarily due to higher average debt balances and lower capitalized interest.
• A loss on disposition of investment in an unconsolidated affiliate of $4.7 million was recognized in 2025 from selling the interest in the Markel joint venture.
• Equity in earnings of unconsolidated affiliates was $1.8 million lower in 2025, mainly due to higher net losses from newly constructed, not-yet-stabilized joint venture buildings (23Springs and Granite Park Six).
• Net cash provided by operating activities decreased by $44.38 million in 2025 compared to 2024.
• Net cash used in investing activities increased by $138.23 million in 2025 compared to 2024.
• The company's total return performance lagged both the S&P 500 Index and the FTSE NAREIT Equity Office Index for the period from December 31, 2020, to December 31, 2025.

Risks

• The continued social acceptance, desirability, and perceived economic benefits of work-from-home arrangements could materially and negatively impact the future demand for office space over the long-term.
• Adverse economic conditions in markets, such as high unemployment, may result in lower occupancy and rental rates for the portfolio.
• Considerable competition in the leasing market may prevent the renewal of existing leases or re-letting space on similar terms, potentially requiring significant capital expenditures for rent concessions and tenant improvements.
• Difficulties or delays in renewing leases with large customers or re-leasing space vacated by large customers could materially impact results of operations.
• Certain leases permit customers to terminate early, which could adversely affect financial condition and results of operations.
• Financial difficulties experienced by a major customer, or by a number of smaller customers, including bankruptcies, insolvencies, or general downturns in business, could adversely impact operations.
• An oversupply of space in markets often causes rental rates and occupancies to decline, making it more difficult to lease space at attractive rates.
• Regular capital expenditures are required to maintain, repair, renovate, and improve properties to remain competitive, with no assurance of resulting in higher occupancy or rental rates.
• Costs of complying with governmental laws and regulations (environmental protection, human health and safety) may adversely affect results of operations.
• Discovery of previously undetected environmentally hazardous conditions may adversely affect financial condition and results of operations.
• Operating costs (e.g., real estate taxes, utilities, insurance, maintenance) rising faster than the ability to increase rental revenues and/or cost recovery income would suffer same property results of operations.
• Natural disasters and climate change could have an adverse impact on cash flow and operating results, including delayed development, increased repair costs, higher operating costs, and reduced demand.
• Insurance coverage on properties may be inadequate or exclude certain types of losses (e.g., terrorist acts, named windstorms, earthquakes, toxic mold).
• Failure to comply with Federal government contractor requirements could result in substantial costs and loss of substantial revenue.
• Risks associated with security breaches through cyber attacks, cyber intrusions, ransomware, or other significant disruptions of information technology (IT) networks and related systems.
• Recent and future acquisitions and development properties may fail to perform in accordance with expectations and may require renovation and development costs exceeding estimates.
• Illiquidity of real estate investments and the tax effect of dispositions could significantly impede the ability to sell assets or respond to market changes.
• The use of joint ventures may limit control over and flexibility with jointly owned investments, exposing the company to disputes, debt refinancing risks, and differing objectives.
• Risks associated with the development of mixed-use commercial properties, particularly non-office components where the company has less experience.
• Properties subject to ground leases limit uses, restrict ability to sell or transfer, and expose to loss if agreements are breached, terminated, or not renewed.
• The use of debt could have a material adverse effect on financial condition and results of operations, including the risk of breaching covenants, credit rating downgrades, and inability to refinance.
• Increases in interest rates would increase interest expense on variable rate debt.
• The use of interest rate hedge contracts to manage risk may expose the company to additional risks, including counterparty failure.
• Risk that third parties will not be able to service or repay loans made to them (e.g., seller financing, joint venture loans).
• The Company may be subject to taxation as a regular corporation if it fails to maintain its REIT status, which could have a material adverse effect on stockholders and the Operating Partnership.
• Even if the company remains qualified as a REIT, it may face other tax liabilities that adversely affect financial condition and results of operations.
• Complying with REIT requirements may cause the company to forego otherwise attractive opportunities or liquidate otherwise attractive investments.
• The prohibited transactions tax may limit the ability to sell properties.
• Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends, potentially making REITs less attractive to individual investors.
• The company faces possible tax audits that could have a material adverse effect on results of operations.
• The price of Common Stock is volatile and may decline due to various market and company-specific factors.
• Tax elections regarding distributions may impact the future liquidity of the Company or its stockholders.
• Tax legislative or regulatory action could adversely affect the company or its stockholders.
• There is no assurance that the company will continue to pay dividends at historical rates.
• Further issuances of equity securities may adversely affect the market price of Common Stock and may be dilutive to current stockholders.
• The company may change its policies without obtaining the approval of its stockholders.
• Limits on changes in control (charter, bylaws, Maryland general corporation law, operating partnership agreement) may discourage takeover attempts beneficial to stockholders.

Future Outlook

Highwoods Properties expects average occupancy in its office portfolio to range from 85.0% to 87.0% for 2026. The company anticipates higher Net Operating Income (NOI), rental and other revenues, rental property and other expenses, depreciation and amortization, general and administrative expenses, interest expense, and net cash from operating activities in 2026 compared to 2025, driven by recent acquisitions, completed development projects, and an anticipated increase in consolidated same property NOI, partially offset by property dispositions. The company plans to sell up to an additional $250 million of non-core properties during the remainder of 2026 and expects to meet its short-term and long-term liquidity needs through a combination of cash flows, debt issuance, equity issuance, and non-core asset dispositions.

Management Comments

• "Our vision is to be a leader in the evolution of commercial real estate for the benefit of our customers, our communities and those who invest with us."
• "Our mission is to create environments and experiences that inspire our teammates and our customers to achieve more together."
• "We are in the work-placemaking business and believe that by creating exceptional environments and experiences, we can deliver greater value to our customers, their teammates and, in turn, our shareholders."
• "Our simple strategy is to own and operate high-quality workplaces in the BBDs within our footprint, maintain a strong balance sheet to be opportunistic throughout economic cycles, employ a talented and dedicated team and communicate transparently with all stakeholders."
• "We focus on owning and managing buildings in the most dynamic and vibrant BBDs. BBDs are highly-energized and amenitized workplace locations that enhance our customers ability to attract and retain talent."
• "We believe being a fully-integrated REIT is in the best long-term interests of our stockholders for a number of reasons: in-house services generally allow us to better anticipate and respond to the many real-time demands of our existing and potential customer base; we are able to provide our customers with more cost-effective services; the depth and breadth of our capabilities and resources provide us with market information not generally available; operating efficiencies achieved through our fully-integrated organization provide a competitive advantage; we can ensure consistent deployment of a comprehensive preventative maintenance program; our established detailed service request process creates chain of custody for a customer request and tracks status and response time; and our first-hand relationships with our customers lead to better experiences."
• "Above all, being a fully-integrated REIT across these diverse functional areas gives us the benefit of engaging and responding to our customers needs as an owner versus a vendor. We believe this distinction, a core component of our value proposition, translates into improved customer experience and higher customer retention."
• "We continue to maintain a conservative and flexible balance sheet and believe we have ample liquidity to fund our operations and growth prospects."
• "We generally believe existing cash and rental and other revenues will continue to be sufficient to fund our short-term liquidity needs such as funding operating and general and administrative expenses, paying interest expense, maintaining our existing quarterly dividend and funding existing portfolio capital expenditures, including building improvement costs, tenant improvement costs and lease commissions."
• "We generally believe we will be able to satisfy future obligations with existing cash, borrowings under our revolving credit facility, new bank term loans, issuance of other unsecured debt, mortgage debt and/or proceeds from the sale of additional non-core assets."

Industry Context

StockSavvy.ai notes that Highwoods Properties' strategy to focus on 'Best Business Districts' (BBDs) aligns with a broader industry trend of flight-to-quality, where companies seek premium, amenity-rich office spaces to entice employees back to the office amidst persistent work-from-home trends. The decline in overall occupancy (87.1% to 85.3%) reflects the ongoing challenges faced by the office sector, but the 15.4% higher GAAP rents on new and renewal leases in Q4 2025 suggest that demand for high-quality, well-located assets remains strong, supporting the BBD strategy. The company's proactive asset recycling (dispositions of non-core assets) is also a common strategy among REITs adapting to evolving market dynamics and optimizing portfolios.

Comparison to Industry Standards

• The company's average annual employee turnover rate of 16% over the past three years is substantially lower than the average national industry turnover rate of 22% reported by the Bureau of Labor Statistics, indicating strong employee retention.
• The total return performance of Highwoods Properties, Inc. (90.83) lagged both the S&P 500 Index (196.16) and the FTSE NAREIT Equity Office Index (81.15) for the period from December 31, 2020, to December 31, 2025. While it outperformed the FTSE NAREIT Equity Office Index in 2024, it underperformed in 2025, suggesting sector-specific headwinds and potentially company-specific challenges relative to broader market and office REIT peers.

Corporate Governance

Legal Proceedings

• The company is a party to a variety of legal proceedings, claims, and assessments arising in the ordinary course of business.
• Based on the current expected outcome of such matters, none of these proceedings, claims, or assessments are expected to have a material adverse effect on the business, financial condition, results of operations, or cash flows.

Related Party Transactions

• The Company conducts its activities through Highwoods Realty Limited Partnership (the Operating Partnership) and is its sole general partner.
• As of December 31, 2025, the Company owned all of the Preferred Units and 109.5 million, or 98.2%, of the Common Units in the Operating Partnership.
• The Operating Partnership is obligated to redeem each Common Unit at the request of the unitholder for cash or one share of Common Stock, at the Company's option.
• The Operating Partnership is obligated to assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership.
• The Company receives development, management, and leasing fees for services provided to certain unconsolidated joint ventures, recognized in income to the extent of the respective joint venture partners' interest.
• Joint venture agreements include rights for the company to buy, and joint venture partners to sell, their interests under certain circumstances for fair market value.
• Certain joint venture partners have the right to receive additional consideration from the company or the joint venture if the internal rate of return on the applicable development project exceeds certain thresholds.
• The company provided a $52.3 million interest-only secured construction loan to the Midtown East joint venture and a $52.8 million interest-only secured construction loan to the 2827 Peachtree joint venture.

Stakeholder Impact

• Shareholders are impacted by the decline in occupancy, lower FFO, and stock underperformance relative to benchmarks, but also benefit from strategic acquisitions, asset recycling, and higher GAAP rents on new leases. Dividends were maintained at $0.50 per share quarterly. Future equity issuances could lead to dilution.
• Employees experienced a reduction of 32 full-time employees in 2025. The company maintains strong employee retention (16% turnover vs. 22% industry average) and offers a comprehensive total rewards program, including competitive pay (none below $15/hour), health insurance, paid time off, 401(k) match (93% participation), and an employee stock purchase plan (nearly 30% participation). An apprenticeship program is being implemented to address a potential future shortage of skilled trade professionals.
• Customers benefit from the company's 'work-placemaking' strategy, focusing on creating high-quality, amenity-rich office environments in Best Business Districts. Higher GAAP rents on new and renewal leases indicate the value customers place on these premium spaces.
• Communities are positively impacted by the company's commitment to minimizing environmental impacts, supporting local trade schools through apprenticeship programs, providing opportunities to small and minority vendors, and encouraging employee volunteer initiatives.
• Creditors are supported by the company's conservative balance sheet, ample liquidity, absence of debt maturities before 2027, and compliance with financial covenants. Recent debt issuances and term loan extensions demonstrate active debt management.

Next Steps

• The Annual Meeting of Stockholders is scheduled to be held on May 12, 2026.
• The company expects to sell up to an additional $250 million of non-core properties during the remainder of 2026.
• Anticipates higher NOI, rental and other revenues, rental property and other expenses, depreciation and amortization, general and administrative expenses, interest expense, and net cash from operating activities in 2026 compared to 2025.
• The company plans future investments in acquisitions and development of additional office buildings in Best Business Districts (BBDs) of its markets.
• A new accounting standards update (ASU) requiring disaggregated disclosure of income statement expenses is required to be adopted in the 2027 Annual Report.
• A cash dividend of $0.50 per share of Common Stock, declared on January 29, 2026, is payable on March 10, 2026.
• Payouts for the 2025 annual non-equity incentive program are expected around March 1, 2026.

Key Dates

Recommendation

While Highwoods Properties demonstrates strategic agility through targeted acquisitions in Best Business Districts (BBDs) and successful asset recycling, the core operational metrics of declining occupancy, lower Funds from Operations (FFO), and reduced same-property Net Operating Income (NOI) in 2025 present headwinds. The increase in net income is largely driven by higher gains on property dispositions, which are not sustainable recurring revenue. The company's strong balance sheet and commitment to its dividend are positive, but the underperformance relative to the broader market and office REIT index suggests that the challenges in the office sector are impacting its valuation. A 'Hold' recommendation is appropriate as the company navigates these market dynamics, with potential for long-term recovery if its BBD strategy successfully drives future occupancy and rental rate growth, but current performance does not warrant a 'Buy' given the prevailing uncertainties.

Keywords

Office REIT, Commercial Real Estate, Real Estate Investment Trust, SEC Filing, 10-K, Highwoods Properties, Financial Performance, Property Acquisitions, Property Dispositions, Lease Expirations, Net Operating Income, Funds From Operations, Debt Financing, Joint Ventures, Cybersecurity, Corporate Governance, Risk Management, Sustainability, Best Business Districts