Three months ago, Highwoods Properties delivered the kind of quarter office landlords have been waiting years to report: a net increase to its full-year FFO outlook, record-level leasing economics and a flagship development filling up faster than planned. The market's response since then has been anything but celebratory. Shares have fallen 16.2% while the S&P 500 gained 3.2%, and that gap frames the central question for the third-quarter report due after the close on October 27. Either the operating story is still improving and the stock has simply been caught in the cross-currents of capital recycling, or investors are sniffing out something the last call glossed over.
The Street is looking for $0.88 per share on revenue of $213.6 million. That is a step down from the $0.90 and $216.4 million posted last quarter, but still a modest gain of 2.3% on earnings and 5.9% on revenue from a year ago. The sequential dip is not a mystery. Highwoods has sold far more real estate than it originally planned, roughly $375 million through midyear against an initial target near $200 million, including the fully leased Bridgestone Tower in Nashville. Management flagged about $0.04 per share of dilution from proceeds sitting in cash awaiting redeployment, and a slightly softer quarter is the natural arithmetic of that choice. Against a full-year FFO range of $3.46 to $3.70, raised at the midpoint to $3.58, a result in the high-$0.80s keeps the company comfortably on track, so the headline number alone is unlikely to settle the debate.
What matters more is whether the operating momentum described last quarter carried forward. Occupancy rose 70 basis points sequentially, or 110 basis points adjusted for the Bridgestone sale, and GAAP rent spreads climbed to 20.9% from 19.4% the quarter before. Another quarter of occupancy gains and spreads holding near 20% would validate the claim that pricing power is real rather than a one-off. The 23 Springs development in Dallas is the other proof point. It jumped to 93% leased from 83%, and management pulled stabilization forward nine months to the second quarter of 2027. Further leasing there, with rents still above underwriting, would reinforce the idea that Highwoods can create value through development and not just survive the office downturn.
That development ambition is the newest and most consequential catalyst. Management widened its expected new development announcements to $100 million to $400 million, citing signed letters of intent on build-to-suit and substantially pre-leased projects across most core markets. Concrete announcements would show how the excess cash will be put to work and begin to close the dilution gap. A quiet quarter on that front, paired with more dispositions at the high-single-digit to double-digit cap rates management warned about, would sharpen the concern that Highwoods is shrinking its earnings base faster than it can rebuild it.
Dividend coverage sits beneath all of this. With the AFFO payout ratio above 100%, management argued that rising occupancy, straight-line rent burning off, 23 Springs income and leasing capital spending falling from roughly $170 million annualized toward $120 million would restore coverage by 2027. Any sign that leasing costs are easing would lend weight to that timeline. Sentiment has swung from mildly bullish before the last report to firmly bearish now, and the stock trades just above its post-earnings low of $28.34, though still above its 200-day moving average near $27.32. The bar for reassurance is therefore lower than the fundamentals alone would suggest.
Ultimately, this report hinges on whether Highwoods can show that its disposition spree is a bridge to accretive reinvestment rather than a slow retreat. Steady occupancy and spread gains, a reaffirmed or raised outlook and tangible progress on new development would keep the improving narrative intact. Without them, the market's skepticism may prove better founded than last quarter's optimism.