Highwoods Stock Up 14.5% in Three Months: Will the Trend Last?

Highwoods Properties HIW shares have rallied 14.5% in the past three months compared with the industry’s rise of 5.5%.

The company’s portfolio of premier office properties in high-growth Sun Belt markets is well-poised to capitalize on tenants’ growing preference for office spaces with class-apart amenities. With an increasing number of organizations emphasizing return-to-office mandates, demand for high-quality office spaces is picking up, propelling leasing activity.

Moreover, an aggressive capital-recycling program bodes well, and a healthy balance sheet aids financial flexibility.

Analysts seem positive about this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share revised marginally northward to $3.39 over the past two months.

Factors Behind HIW Stock Price Surge: Will the Trend Last?

Highwoods is seeing a recovery in demand for its high-quality and well-placed office properties, as highlighted by a rebound in new leasing volume. Going forward, the next cycle of office space demand is likely to be driven by inbound migration and significant investments announced by office occupiers to expand their footprint in Sun Belt regions, as well as additional hiring plans in the company’s markets. Moreover, HIW is seeing an increasing number of tenants returning to offices. This is likely to support office real estate market fundamentals.

Highwoods’ portfolio is concentrated in high-growth Sun Belt markets, which have long-term favorable demographic trends and are expected to continue experiencing above-average job growth. This is likely to support Highwoods’ rent growth over the long term. Net effective rents witnessed by the company in the first quarter of 2025 were 20% higher than the previous five-quarter average.

HIW has been following a disciplined capital-recycling strategy that entails disposing of non-core assets and redeploying the proceeds in premium asset acquisitions and accretive development projects. From 2010 to 2024, Highwoods completed buyouts worth $3.6 billion, while dispositions totaled $3.0 billion. At the end of the first quarter, management expects to carry out an additional amount of up to $150 million for each of the acquisitions and dispositions in 2025.

Highwoods is also focused on development projects in key markets, which are likely to generate considerable annual net operating income (NOI) upon completion and stabilization. As of March 31, 2025, Highwoods’ development pipeline aggregated $474 million (at the company’s share) and is 62.8% pre-leased. Upon stabilization, the company expects these projects to provide more than $40 million incremental NOI and be a significant driver of cash flows.

HIW maintains a healthy balance sheet, with no consolidated debt maturities until the second quarter of 2026. As of March 31, 2025, the company’s total available liquidity amounted to more than $700 million, including cash on hand, availability on the revolving credit facility and pro rata share of undrawn joint venture construction loans. In the first quarter of 2025, Highwoods generated 84.3% unencumbered NOI (at the company’s share), providing scope to tap additional secured debt capital if required.

Key Risks for HIW

Competition from developers, owners and operators of office properties and a significant development outlay are likely to weigh on Highwoods. A high debt burden adds to the company’s concerns.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Digital Realty Trust DLR and SBA Communications SBAC, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for DLR’s 2025 FFO per share is pegged at $7.04, being revised northward marginally over the past week.

The Zacks Consensus Estimate for SBAC’s full-year FFO per share is pegged at $12.74, moving marginally northward over the past two months.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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This article originally published on Zacks Investment Research (zacks.com).

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