Why You Should Retain Highwoods (HIW) Stock in Your Portfolio

Core Viewpoint - Highwoods Properties (HIW) is strategically positioned to capitalize on the increasing demand for its office properties in high-growth Sun Belt markets, supported by a disciplined capital-recycling program and a robust balance sheet, although it faces competition and high interest rates as potential challenges [1][8][10]. Group 1: Market Position and Demand - Highwoods has a significant portion of its portfolio in high-growth Sun Belt markets, which are expected to experience favorable demographic trends and above-average job growth, supporting long-term rent growth [2]. - The company is witnessing a recovery in demand for its office properties, as evidenced by a leasing volume of 922,167 square feet in the first quarter, including 422,889 square feet of new leases [3]. - The next cycle of office space demand is anticipated to be driven by inbound migration and investments from office occupiers in the Sun Belt regions, along with increased hiring plans, which will likely enhance leasing activity [4]. Group 2: Financial Strategy and Position - Highwoods employs a disciplined capital-recycling strategy, focusing on disposing of non-core assets and reinvesting in premium acquisitions and development projects to improve portfolio quality [5]. - The company maintains a healthy balance sheet with no consolidated debt maturities until the second quarter of 2026, holding approximately $17 million in cash and $10 million drawn from a $750 million revolving credit facility, along with investment-grade ratings from S&P and Moody's [6]. Group 3: Challenges and Risks - Highwoods faces intense competition from other developers and operators in the office property sector, which may hinder its ability to attract tenants at higher rents and affect leasing activity [8]. - The overall office demand in certain markets is expected to remain subdued in the near term, with increased development activities likely leading to new supply, which could strain occupancy levels [9]. - Elevated interest rates present a challenge, increasing borrowing costs and potentially making the company's dividend payout less attractive compared to fixed-income investments [10].