What are the cap rates for the planned dispositions, and how will additional sales impact FFO dilution, especially considering the $0.04 dilution already mentioned?

The $300 million of sales plus the upcoming $74 million closed at roughly an 8% cap rate. Additional dispositions are expected in the high single-digit cap rate range. The $0.04 FFO dilution from excess sales was offset by higher NOI, and future sales proceeds will likely mitigate dilution through debt reduction or funding future income-producing assets. “I think we put in the press release last night with what we've sold so far this year, the $300 million -- and then the 74 or so that will close in the next couple of weeks, combined, that's roughly an 8% cap.”

Can you elaborate on the nature of new development projects beyond 23 Springs, and provide a detailed bridge for the FFO guidance, including dilution from capital recycling and land sale gains?

New development opportunities are numerous across most markets, with a focus on build-to-suit and pre-leased projects, leveraging the low construction environment. The initial FY26 FFO guide included $0.07 dilution from 600 South Tryon (offset by land sale gains) and an additional $0.04 dilution from excess sales. FFO trajectory is expected to accelerate in Q4 FY26 and continue into FY27 due to occupancy gains and 23 Springs lease commencements. “I think a normalized level of kind of earnings power was in that mid-350s context for 2026. And then you'll kind of get that growth from 600 South Dry on next year that will come online.”

What has changed to make development more feasible now, given past challenges with tenants backing off due to high required rents?

The current market has very little new construction and limited large blocks of high-quality space, forcing tenants to consider development for future needs. Construction costs have moderated, and rents in BBDs are now outpacing these costs, making projects underwritable. Additionally, some companies prioritize custom buildings for culture, and existing tenants are seeking renewals years in advance due to scarcity of premium space. “So if you start building today, it's 2 to 3 years get delivered. So customers are looking out and prospects looking out 2 or 3 years, they're not seeing the high-quality space available. So they're having -- they know they have to pay the higher rents to do that.”

HIW

Highwoods Properties (HIW) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Real Estate· Jul 29, 2026

Source: earnings call transcript

Executive summary

Highwoods Properties Q2 FY26 — Strong Leasing, Occupancy Gains, and Raised FFO Outlook

Highwoods Properties delivered strong Q2 FY26 results, marked by robust leasing activity, significant occupancy gains, and positive rent growth across its Sunbelt portfolio. The company successfully recycled capital through dispositions, strengthening its balance sheet and providing dry powder for future investments, particularly in build-to-suit development. Management expressed confidence in continued FFO and cash flow growth, driven by occupancy improvements and a favorable supply-demand dynamic in its core markets.

Highlights

Leasing volume was healthy with over 1 million square feet of second-gen signings, including 326,000 square feet of new leases.
Cash rent spreads were over 3% and GAAP rent spreads over 20%, with net effective rents 8% higher than the prior 5-quarter average.
Occupancy increased by 70 basis points sequentially, or 110 basis points when adjusting for properties owned and in service for the entire quarter.
Accelerated 23 Springs stabilization by 9 months to Q2 2027, with $28 million remaining projected spend.
Raised 2026 FFO outlook to $3.46-$3.70 per share, up $0.04 at the midpoint.

Concerns

G&A was nearly $1 million higher than expected due to write-offs of previously capitalized predevelopment costs.
FFO outlook, excluding land sale gains, is up only $0.01 per share at the midpoint, despite $0.04 per share of dilution from higher-than-expected dispositions without immediate reinvestment.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 FFO per share	$3.46 to $3.70 high materiality	FY26	High
Full-year 2026 FFO per share (excluding land sale gains)	Up $0.01 per share at midpoint medium materiality	FY26	Medium
Year-end 2026 Occupancy	86.5% to 88.5% high materiality	Q4 FY26	High
Additional Dispositions	At least $100 million and maybe as much as $300 million medium materiality	Q3 FY26, Q4 FY26	Medium
New Development Announcements	At least $100 million and potentially as much as $400 million medium materiality	Q3 FY26, Q4 FY26	Medium
Acquisition Outlook	Acquire additional 40% interest in Block 83 in Raleigh for $85 million medium materiality	Q3 FY26, Q4 FY26	High
Debt to EBITDA ratio	Modestly lower at year-end and continued to decline throughout 2027 high materiality	Year-end 2026 and FY27 · FY26, FY27	High

Capital programs

23 Springs (Uptown Dallas) nearing completion

Benefit:93% leased

Lease rate increased to 93%, up 10 percentage points during the quarter. Projected stabilization date accelerated by 9 months from Q1 2028 to Q2 2027. Rents are meaningfully higher than original underwriting. Only $28 million of projected spend remaining to bring to stabilization. No longer capitalizing costs on this project.

Ovation (Nashville) underway

Benefit:1.4 million sq ft office, 1,600 residential units, 430,000 sq ft retail, 350 hotel rooms

Fully owned 150 acres, fully re-entitled for mixed-use density. Includes Mars Pet Care headquarters. Identified build-to-core partners.

Risks & headwinds

Dilution from dispositions without immediate reinvestment FY26

$0.04 per share FFO dilution

Mitigation:Company expects to deploy proceeds into new investments to drive accretion in FFO and cash flow; higher NOI made up for dilution in current guide.

Higher-than-expected G&A Q2 FY26

Nearly $1 million higher than expected

Mitigation:Due to write-offs of previously capitalized predevelopment costs where view of highest and best use has changed.

What to watch in Q3 FY26

Additional noncore dispositions

By year-end 2026

Current $375 million YTD FY26

Target At least $100 million to $300 million additional sales

Why it matters

Verifies progress on capital recycling strategy and provides dry powder for new investments.

We have several more assets currently in the market for sale at various stages and now expect to close at least an additional $100 million and maybe as much as $300 million by the end of the year.

Find out whether HIW delivers this. Inve re-checks your case every morning.

Q&A highlights

Given the current AFFO payout ratio, how does the company view dividend sustainability and how will future development projects be funded?

Management is comfortable with the dividend, viewing it as a key part of total return. They expect cash flow to improve significantly next year from occupancy gains, free rent conversion, development stabilization, and reduced leasing CapEx, leading to better coverage. Funding for development will come from successful noncore asset sales and existing dry powder.

“Look, I think we feel very comfortable that we're going to get back to covering $2 a share next year, hopefully, but it's going to be significantly better than it is today.”

asked by Seth Bergey · answered by Theodore Klinck

2 min read 6 chapters

Detailed narrative

Sunbelt Market Dynamics and Office Demand

Highwoods Properties emphasized the strong performance of its Sunbelt markets, noting a structural supply low with national office construction at its lowest since 1996. This scarcity of prime, commute-worthy space in Best Business Districts (BBDs) is driving pricing power for the company's portfolio.

Vacancy rates in high-quality buildings within their core BBDs are estimated to be at least 5% lower than overall submarket rates, with direct asking rents for prime trophy space in Charlotte breaking $59 per square foot.

Capital Recycling Strategy

The company made significant progress in its capital recycling strategy, selling $260 million of properties in Q2 FY26, including Bridgestone Tower, and expects to close an additional $74 million in noncore dispositions soon, bringing the year-to-date total to $375 million.

Management anticipates closing at least another $100 million, potentially up to $300 million, by year-end. These dispositions, including a mix of single-tenant, multi-tenant, and land parcels, are expected to average high single-digit cap rates.

Development Pipeline Replenishment

With the 23 Springs project nearing stabilization, Highwoods is actively pursuing new development opportunities, primarily build-to-suit or substantially pre-leased projects in existing core markets. The company expects to announce $100 million to $400 million in new development by year-end, leveraging its land bank and capitalized position.

This focus on new development is driven by the scarcity of high-quality space and tenants' willingness to pay higher rents for custom-built or pre-leased options.

Dividend Sustainability and Cash Flow Generation

Management addressed concerns about dividend coverage, stating confidence in returning to $2 per share coverage next year. They highlighted an expected $100+ million increase in cash flow from occupancy build-up, conversion of free rent to cash rent, stabilization of development projects like 600 South Tryon and 23 Springs, and a projected reduction in leasing CapEx from an annualized $170 million to $120 million over time.

The company views the dividend as a crucial part of total return and does not face acute leverage issues or capital raising difficulties.

Market Performance Highlights

Charlotte saw significant corporate commitments and positive net absorption of over 550,000 square feet, with prime trophy availability below 4%. Nashville led in leasing volume with 241,000 square feet, and active construction is 77% pre-leased. Dallas experienced nearly 940,000 square feet of positive net absorption, with Class A asking rents rising above $39 per square foot in Uptown and Preston Center, where company vacancy is below 5%.

Balance Sheet Strength and Liquidity

Highwoods maintains a strong balance sheet with ample liquidity, ending Q2 FY26 with $145 million cash on hand and an undrawn $750 million revolving line of credit. The debt-to-EBITDA ratio improved from 6.7x to 6.2x. The company extended a $150 million term loan maturity to 2031 and repurchased $11 million of its March 2027 bonds, which can be repaid at par starting December 2026.

Pro forma cash balance is expected to exceed $250 million after upcoming asset sales.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.