Highwoods Defies AI Fear, Accelerates Lease-Up and Puts Buyback on the Table

Q1 leasing surge, development pipeline progress, and a new $250M repurchase authorization signal a turning point for the Sunbelt office REIT.

HIW · Earnings Call · 2026-04-29

Leasing Momentum and the AI Pushback

The market has been listening to the doomsday chorus about AI hollowing out office demand, but Highwoods Properties is hearing something else entirely. The stock is up 40% over the last 90 days, and the first-quarter numbers justify the optimism. The company signed 958,000 square feet of second-generation leases, delivered 19.4% GAAP rent growth, and pushed net effective rents to the second-highest level in company history. The CEO, Theodore Klinck, was emphatic on the call: “We are not seeing any impact from AI; in fact, it has been a net positive—we signed a couple of AI-related users.” — Theodore J. Klinck, Chief Executive Officer · 2026-04-29 That is a distinct tone shift from the February 2026 call, where he acknowledged the narrative but pushed back more cautiously: “We really haven't... It's just not what we're seeing from our customers and on the demand.” — Theodore J. Klinck, Chief Executive Officer · 2026-02-11 Now they have hard evidence to counter the bear case, and it is tied directly to the company's core identity: High quality space in best business districts remains scarce, and tenants are voting with their feet. The Office fundamentals across their Sunbelt footprint are improving—vacancy and sublease space are declining, and the flight to quality is accelerating.

Capital Allocation: Recycling Plus a New Buyback

The most consequential strategic development this quarter is the board's authorization to repurchase up to $250 million of stock on a leverage-neutral basis. This is a new tool in the capital allocation arsenal, and management was explicit about how they view it relative to acquisitions and development.

As we announced last week, we may also use non-core disposition proceeds to repurchase up to $250 million of outstanding shares of common stock on a leverage-neutral basis.
Theodore J. Klinck, Chief Executive Officer · 2026-04-29

In the Q&A, Klinck expanded on the decision: “Looking at the best ways to improve our long-term growth rate... I think our stock buyback gives us another option and optionality.” — Theodore J. Klinck, Chief Executive Officer · 2026-04-29 This is a contrast to the prior quarter, when the company was firmly focused on recycling into acquisitions without entering new markets—as Klinck said in October 2025: “None of them are new markets. They would all be adding to existing holdings in our existing markets.” — Theodore Klinck, Chief Executive Officer · 2025-10-29 The shift from pure asset rotation to also include share repurchases signals that management sees intrinsic value at current prices, even as potential new development opportunities emerge. They are fielding interest from build-to-suit tenants, which could represent the next leg of growth. The company is also positioning to fund these priorities by selling $200 million of non-core assets by mid-year, a pace that many in the market will watch closely.

Fundamentals and Occupancy Upside

The leasing wins are not just for show—they are embedded in the financials. The company's leased rate is 89.7% versus occupied at 84.7%, a 470-basis-point gap that is three times the historical spread. That gap is a direct pipeline to NOI growth. Funds From Operations came in at $111M in Q1, roughly flat year-over-year, but with the development pipeline and signed leases ramping, management expects a meaningful step-up in the back half and into 2027. The development properties placed in service this quarter—GlenLake III, Granite Park 6, and Midtown East—are 86% leased but only 48% occupied, so the NOI impact is still ahead. The interest coverage remains secure at 3.4x, and the company has over $650M of liquidity, positioning it to fund the buyback and future investments without straining the balance sheet. The company's focus on worthy properties in BBD locations continues, with the Dallas and Charlotte acquisitions already hitting their stride. As the occupancy gap narrows, the market is likely to re-rate the stock upward; the recent price action suggests investors are starting to believe the story.