Highwoods Properties (HIW) Q3 2026 earnings review
Highwoods fills more office space, but cash growth trails accounting
Highwoods Properties, an owner of Sun Belt office towers, filled empty space and raised its profit outlook while actual cash growth stayed barely positive. Occupancy rose 1.3 percentage points from June to 87%, and accounting rents on re-leased space jumped 29%. Chief executive Ted Klinck raised the full-year funds from operations plan, which by our math points to over $0.90 per share in the fourth quarter excluding land sales.
| Same property cash operating profit | +0.2% +4.1% on an accounting basis |
|---|---|
| Portfolio occupancy rate | 87.0% up 1.3 percentage points from June |
| Accounting rent on re-leased space | +28.8% +4.2% on a cash basis |
| Full-year funds from operations outlook | Raised 2.5¢ middle of the range: $3.605 per share |
⚖️ Verdict: 🟢 Bullish
The story got better because signed leases finally turned into move-ins, lifting occupancy to the bottom of the full-year target a quarter early. Property sales and project loans also brought in cash to cover all debt due through 2027. One caution: finance chief Brendan Maiorana said upfront leasing costs and free rent will keep cash flow below normal levels until 2028.
The question now is how fast high accounting rents turn into actual cash after free-rent periods expire. If tenant renovation spending falls toward $115 million a year, cash flow will rise to cover the dividend comfortably; if upfront costs stay high, cash generation will lag. February's 2027 outlook will show the pace.
🐂 Bull Case
Signed Leases Finally Lifted Building Occupancy
Highwoods, a real estate trust that owns offices across the southern United States, has signed many leases over the past year that had not yet started. This quarter, tenants moved in and occupancy rose 1.3 percentage points from June to 87.0%. The total leased rate, which includes signed contracts that have not yet started, reached 90.1%.
The 3.1 percentage point gap between leased and occupied space represents about 800,000 square feet of future move-ins, finance chief Brendan Maiorana said. In addition, the company expects to keep about half of the tenants whose leases expire over the next five quarters. Because fewer tenants are leaving and a large backlog is moving in, occupancy should keep rising into 2027.
What to watch: fourth-quarter occupancy against the 87.5% middle of the full-year plan. Reaching that mark would confirm that new move-ins are outpacing tenant departures as planned.
Sun Belt Scarcity Pushes Rents Up 29%
"Office fundamentals are accelerating across our footprint, which drove strong operating and financial performance during the quarter and underpins our positive outlook for the foreseeable future," chief executive Ted Klinck said. Highwoods focuses on what it calls best business districts (BBDs), which are prime city neighborhoods with little new office construction.
- Previously occupied space leased: 1.2 million square feet, including 300,000 square feet to new tenants
- Accounting rent on renewed or replaced leases: up 28.8% compared with the prior contracts
- Cash rent on those same leases: up 4.2%, while Charlotte cash rents jumped 19%
- Average lease length: 7.3 years, up from 6.4 years last quarter
Because builders are constructing almost no rival offices in cities like Nashville and Charlotte, tenants are renewing three to five years early to secure space. Market rents across the portfolio now sit about 7% above the rents current tenants pay, Maiorana said, which gives the landlord room to raise prices as older contracts expire.
What to watch: cash rent increases on re-leased space in the fourth quarter. Holding gains near 4% or better would show that higher asking rents are turning into immediate cash payments.
Property Sales and Project Loans Cut Debt
Highwoods is selling older properties that require heavy maintenance to focus on newer buildings and cut debt. During the third quarter, the landlord sold nine non-core buildings across Richmond, Atlanta, and Raleigh for $85.2 million. That brought total sales this year to $386 million, nearly $150 million above the original target set in February.
At the same time, the real estate group took out new mortgage loans on two joint-venture towers, 23 Springs in Dallas and Midtown East in Tampa, which returned $99 million of cash to Highwoods. Net debt fell to 6.07 times annualized operating profit (Adjusted EBITDAre), down from 6.36 times a year ago. With $279 million in cash, the trust can pay off its $286 million bond due in March 2027 without borrowing more money.
What to watch: closing of the next $100 million to $250 million of property sales currently under contract. Completing these deals by year-end will fund future projects without adding debt.
🐻 Bear Case
Free Rent and Upfront Costs Delay Cash
While Highwoods highlights a 4.1% rise in accounting profit at properties owned for at least a year, actual cash profit at those same buildings rose just 0.2%. Maiorana noted that "cash flow has been below normalized levels during 2026 as we spend upfront leasing capital to build occupancy before realizing the benefit of higher cash revenues."
When new tenants sign leases, Highwoods gives them initial months of free rent and pays for office renovations and broker commissions. Non-cash straight-line rent, which records revenue during free-rent periods, more than doubled from a year ago to $14.0 million. Meanwhile, upfront leasing capital spending passed $140 million for the first nine months of 2026.
Even worse, management pushed back the timeline for a full cash recovery. Maiorana called 2027 "an okay year from a cash flow perspective, but certainly not back to what we think of as normalized levels," moving the target for normal cash generation to 2028.
What to watch: the 2027 outlook for straight-line rent and leasing capital spending in February. A drop toward $110 million to $120 million in annual leasing capital is needed to improve dividend coverage.
New Construction Plans Carry Undisclosed Return Targets
Because Highwoods has not found existing office towers to buy at prices it likes this year, Klinck plans to announce $100 million to $400 million of new construction projects by year-end. Its only current project, 23 Springs in Dallas, is now 95% leased and $19 million away from completion.
However, new office towers take two to four years to build, so they will not produce rental income until at least 2028. For a fourth straight quarter, executives declined to state the exact return on cost they require to start building, saying only that development returns sit well above acquisition yields. Furthermore, Charlotte and Nashville market rents still sit about 20% below the levels needed to justify new multi-tenant construction, Klinck said.
What to watch: project cost, pre-leasing percentage, and targeted yield on any fourth-quarter development announcement. Starting construction without a large pre-leased tenant would add leasing risk while tying up cash for years.
Risks this quarter didn't answer
Two standing capital allocation questions remained open after the third-quarter report and conference call.
- Exiting Pittsburgh: Highwoods plans to sell its PPG Place complex in Pittsburgh, but Klinck said that exit will wait until the company finishes selling the $250 million of properties currently under contract and a few buildings in Atlanta.
- Unused share buyback: The board approved a $250 million share repurchase plan in the first quarter, but Highwoods has not bought back shares and instead agreed to issue 1.06 million new shares through forward sales at $32.24 each.
👓 Other Themes
Tenants View Office Space as Talent Tool
Despite high interest rates and concerns that artificial intelligence could shrink office staffs, chief operating officer Brian Leary said companies are expanding their office footprints by an average of 13% nationally. When speaking with prospective anchor tenants, Leary noted that "it's really a strategic talent decision as much as it is a capital decision" because employers want their workers together under one roof.
💲 Other KPIs
Revenue rose 8.1% from a year ago and 0.8% from last quarter, marking the fastest yearly growth in over a year. Buildings bought in Charlotte, Dallas, and Raleigh during 2025 and early 2026 drove the increase, outweighing the loss of rent from $386 million of older properties sold this year. Operating expenses for rental properties stayed steady at 32.8% of revenue.
Deferred leasing costs—commissions and tenant incentives paid upfront and expensed over the life of a lease—climbed 15.0% since the end of 2025. The balance rose from $244.3 million in December to $278.2 million in June and $280.9 million in September, showing the heavy cash outlay required to sign 3.2 million square feet of leases this year.
The average number of diluted shares rose 1.6% from 110.5 million a year ago. In addition, the trust signed forward agreements during the third quarter to sell 1.06 million new shares at $32.24 each for $33.5 million in net proceeds, which will add to the share count once Highwoods settles the contracts.
🔮 Guidance
Raised. Highwoods lifted the bottom of its full-year range by 5 cents, pushing the middle of the range up 2.5 cents to $3.605 per share, or 3.6% growth from last year. This is the second raise this year after holding the plan steady in the first quarter and adding 4 cents in the second. By our math, the outlook leaves about $0.975 for the fourth quarter, or over $0.90 excluding potential land sales.
Unchanged. Management kept the full-year cash profit plan for properties owned at least a year at flat at the middle of the range. Because cash profit fell 0.3% across the first nine months, reaching the middle of the full-year range requires fourth-quarter cash profit to grow about 0.9% from a year ago by our math.
Raised. The company lifted its accounting profit outlook for existing properties by 0.2 percentage points after third-quarter growth reached 4.1%. It is the second raise this year from the original 0.5% to 2.5% forecast. By our math, the 2.5% middle of the range points to about 4.3% growth in the fourth quarter.
Unchanged at the middle of the range. Highwoods narrowed the band by 0.5 percentage points on each side, keeping the midpoint at 87.5%. Because occupancy already reached 87.0% at the end of September, the plan requires another 0.5 percentage points of move-ins during the fourth quarter.
Unchanged. The forecast for non-cash accounting rent stays at a $45 million midpoint. With $33.9 million recorded in the first nine months after $14.0 million in the third quarter, the middle of the range leaves about $11.1 million for the fourth quarter by our math.
Raised. Corporate overhead costs moved up $1 million at the middle of the range to $43 million, the second $1 million increase this year. Having spent $33.2 million in the first nine months, the outlook implies $9.8 million of fourth-quarter overhead by our math.
Unchanged. Highwoods recorded $0.035 per share in the second quarter and none in the third. Maiorana said "We have one possible transaction that could close prior to year-end and result in a large gain" of up to $0.14 per share, though the deal could slip into 2027.
Raised. Completed property sales assumed in the profit outlook rose by $11 million after Highwoods added two Raleigh office buildings to its planned third-quarter sales in Richmond and Atlanta.
Unchanged. Completed purchases included in the outlook remain at the $108 million closed in the first quarter across Dallas and Raleigh, as no new acquisitions closed in the second or third quarters.
Unchanged. Highwoods still expects to sell another $100 million to $250 million of older properties before year-end. Klinck noted that all of these deals are currently under contract at an average yield just below 9.5%.
Cut. Management lowered the top end by $165 million and dropped the floor to zero. The $85 million top end represents Highwoods' option to raise its stake in the Bloc83 complex in Raleigh from 10% to 50%, which may happen this year or in 2027.
Unchanged. The company still plans to announce $100 million to $400 million of new construction projects during the fourth quarter, focusing on custom build-to-suit offices or buildings with anchor tenants.
❓ Key Questions
Why delay the cash flow recovery target until 2028?
Finance chief Brendan Maiorana said 2027 cash flow will not return to normal levels, pushing full recovery to 2028. Investors need to know how much free rent and tenant improvement spending will still weigh on cash in 2027.
Why sell new shares at $32 while keeping cash?
Highwoods holds $279 million in cash and an unused $250 million buyback plan, yet it agreed to issue 1.06 million shares at $32.24. Management did not explain why it raised equity before securing an acquisition or development deal.
What exact return on cost justifies new office construction?
With up to $400 million of new projects planned by year-end and market rents in Charlotte and Nashville still 20% below construction thresholds, investors need the exact yield target Highwoods requires over its 9.5% disposition yields.
How much did property sales boost the occupancy rate?
Highwoods sold nine buildings totaling 751,000 square feet in the third quarter while portfolio occupancy jumped 1.3 percentage points. Management did not disclose the occupancy rate of those sold buildings or how much their removal lifted the average.