Highwoods Properties(HIW) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported FFO of $0.90 per share for Q4 2025, including $0.06 from land sale gains, resulting in a full-year FFO of $3.48 per share, which is 2% higher than the midpoint of the original outlook for 2025 [8][26] - Net income for Q4 2025 was $28.7 million, or $0.26 per share [26] - The initial 2026 FFO outlook is set at a midpoint of $3.54 per share, which is 5.7% higher than the initial 2025 outlook [8][28] Business Line Data and Key Metrics Changes - The company leased 526,000 sq ft of second-generation space in Q4 2025, including 221,000 sq ft of new leases [8] - The development pipeline is now 78% pre-leased, up from 72% last quarter and 56% one year ago [10] - Cash rent spreads were positive, with GAAP rent spreads in the mid-teens, and net effective rents were 20% higher than in 2024 [10] Market Data and Key Metrics Changes - The company highlighted strong demand in its core Sun Belt markets, with limited new supply and increasing rental rates [5][19] - Charlotte, Dallas, and Raleigh are identified as strong markets with significant job growth and corporate relocations [21][23] - The overall leasing activity in the Sun Belt markets is robust, with positive net absorption and a decrease in competitive supply [19][22] Company Strategy and Development Direction - The company aims to drive occupancy higher by approximately 200 basis points from the end of 2025 to the end of 2026, with a focus on high-quality office and BBD locations [6] - Future investments are expected to yield attractive risk-adjusted returns, with approximately $800 million invested over the past 12 months [7] - The company plans to announce up to $200 million in new development projects in 2026, driven by strong demand [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the next few years, citing strong fundamentals in the Sun Belt markets and the potential for significant NOI and earnings growth [5][6] - The company is confident in its ability to navigate the current economic environment, with a focus on high-quality assets and capital recycling [18] - Management noted that expansions are outpacing contractions in their portfolio, indicating a healthy demand environment [44] Other Important Information - The company sold $66 million of non-core buildings and land in Q4 and plans to close an additional $190 million to $210 million in dispositions by mid-year 2026 [16][27] - The company has filed a new S-3 shelf registration statement with the SEC for future capital market transactions [35] Q&A Session Summary Question: When does the company expect to realize elevated growth rates from capital recycling? - Management indicated that the impact on 2026 is one-time in nature, with growth expected to normalize in 2027 [37] Question: How is demand for the remaining leasing in the development pipeline? - Management reported strong demand, with continued progress in leasing throughout 2025 [40] Question: Has the company seen any impact from AI-related layoffs? - Management stated that they have not observed any significant impact from AI on their tenant base, with continued demand for office space [44] Question: What is the expected cash flow outlook given elevated CapEx? - Management expects 2026 spending to be lower than 2025, with increased cash NOI anticipated from future leases [48] Question: What percentage of the $200 million in non-core sales is related to land sales? - Management clarified that the $200 million does not include land sales, which are expected later in the year [54]