ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the accompanying Consolidated Financial Statements and related notes contained elsewhere herein.
Disclosure Regarding Forward-Looking Statements
Some of the information in this Annual Report may contain forward-looking statements. Such statements include statements about our plans, strategies and prospects under this section and under the heading “Item 1. Business.” You can identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue” or other similar words. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that our plans, intentions or expectations will be achieved. When considering such forward-looking statements, you should keep in mind important factors that could cause our actual results to differ materially from those contained in any forward-looking statement, including the following:
•the financial condition of our customers could deteriorate;
•our assumptions regarding potential losses related to customer financial difficulties could prove incorrect;
•counterparties under our debt instruments, particularly our revolving credit facility, may attempt to avoid their obligations thereunder, which, if successful, would reduce our available liquidity;
•we may not be able to lease or re-lease second generation space, defined as previously occupied space that becomes available for lease, quickly or on as favorable terms as old leases;
•we may not be able to lease newly constructed buildings as quickly or on as favorable terms as originally anticipated;
•we may not be able to complete development, acquisition, reinvestment, disposition or joint venture projects as quickly or on as favorable terms as anticipated;
•development activity in our existing markets could result in an excessive supply relative to customer demand;
•our markets may suffer declines in economic and/or office employment growth;
•increases in interest rates could increase our debt service costs;
•increases in operating expenses could negatively impact our operating results;
•natural disasters and climate change could have an adverse impact on our cash flow and operating results;
•we may not be able to meet our liquidity requirements or obtain capital on favorable terms to fund our working capital needs and growth initiatives or repay or refinance outstanding debt upon maturity; and
•the Company could lose key executive officers.
This list of risks and uncertainties, however, is not intended to be exhaustive. You should also review the other cautionary statements we make in “Item 1A. Risk Factors” set forth in this Annual Report. Given these uncertainties, you should not place undue reliance on forward-looking statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements to reflect any future events or circumstances or to reflect the occurrence of unanticipated events.
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Executive Summary
Our vision is to be a leader in the evolution of commercial real estate for the benefit of our customers, our communities and those who invest with us. Our mission is to create environments and experiences that inspire our teammates and our customers to achieve more together. We are in the work-placemaking business and believe that by creating exceptional environments and experiences, we can deliver greater value to our customers, their teammates and, in turn, our shareholders. By creating and operating commute-worthy places, we support the growth and success of our customers and contribute to the vitality of our communities. Our simple strategy is to own and operate high-quality workplaces in the BBDs within our footprint, maintain a strong balance sheet to be opportunistic throughout economic cycles, employ a talented and dedicated team and communicate transparently with all stakeholders. We focus on owning and managing buildings in the most dynamic and vibrant BBDs. BBDs are highly-energized and amenitized workplace locations that enhance our customers’ ability to attract and retain talent. They are both urban and suburban. Providing the most talent-supportive workplace options in these environments is core to our work-placemaking strategy.
Our investment thesis is to generate attractive and sustainable returns over the long term for our stockholders by developing, acquiring and owning a portfolio of high-quality, differentiated office buildings in the BBDs of our core markets. A core component of this strategy is to continuously strengthen the financial and operational performance, resiliency and long-term growth prospects of our existing in-service portfolio and recycle those properties that no longer meet our criteria.
Revenues
Our operating results depend heavily on successfully leasing and operating the office space in our portfolio. Economic growth and office employment levels in our core markets are important factors, among others, in predicting our future operating results.
The key components affecting our rental and other revenues are average occupancy, rental rates, cost recovery income, new developments placed in service, acquisitions and dispositions. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower or negative economic growth, when new vacancies tend to outpace our ability to lease space. Asset acquisitions, dispositions and new developments placed in service directly impact our rental revenues and could impact our average occupancy, depending upon the occupancy rate of the properties that are acquired, sold or placed in service. Another indicator of the predictability of future revenues is the expected lease expirations of our portfolio. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also concentrate our leasing efforts on renewing existing leases prior to expiration. For more information regarding our lease expirations, see “Item 2. Properties – Lease Expirations” and “Item 1A. Risk Factors – Risks Related to our Operations. The continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements could materially and negatively impact the future demand for office space over the long-term.” Occupancy in our office portfolio decreased from 87.1% as of December 31, 2024 to 85.3% as of December 31, 2025. We expect average occupancy in our office portfolio to range from 85.0% to 87.0% for 2026.
Whether or not our rental revenue tracks average occupancy proportionally depends upon whether GAAP rents under signed new and renewal leases are higher or lower than the GAAP rents under expiring leases. Annualized rental revenues from second generation leases expiring during any particular year are typically less than 15% of our total annual rental revenues. The following table sets forth information regarding second generation office leases signed during the fourth quarter of 2025 (we define second generation office leases as leases with new customers and renewals of existing customers in both consolidated and unconsolidatedoffice space that has been previously occupied and leases with respect to vacant space in acquired buildings):
New Renewal All Office
Average term (in years - rentable square foot weighted) 7.0 4.1 5.3
Rent concessions (per rentable square foot) (1) (2.34) (1.46) (1.83)
Tenant improvements (per rentable square foot) (1) $ 5.86 $ 2.28 $ 3.80
Leasing commissions (per rentable square foot) (1) $ 1.48 $ 1.03 $ 1.22
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(1) Weighted average per rentable square foot on an annual basis over the lease term.
Annual combined GAAP rents for new and renewal leases signed in the fourth quarter were $35.02 per rentable square foot, 15.4% higher compared to previous leases in the same office spaces.
We strive to maintain a diverse, stable and creditworthy customer base. We have an internal guideline whereby customers that account for more than 3% of our revenues are periodically reviewed with the Company's Board of Directors. As of December 31, 2025, only Bank of America (4.3%) and Asurion (3.5%) accounted for more than 3% of our annualized GAAP revenues. See “Item 2. Properties - Customers.”
Expenses
Our expenses primarily consist of rental property expenses, depreciation and amortization, general and administrative expenses and interest expense. From time to time, expenses also include impairments of real estate assets. Rental property expenses are expenses associated with our ownership and operation of rental properties and include expenses that vary somewhat proportionately to occupancy and usage levels, such as janitorial services and utilities, and expenses that do not vary based on occupancy and usage levels, such as property taxes and insurance. Depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year, unless we buy, develop or sell assets, since our properties and related building and tenant improvement assets are depreciated on a straight-line basis over fixed lives. General and administrative expenses primarily consist of management and employee salaries and benefits, corporate overhead and short and long-term incentive compensation.
Net Operating Income
Whether or not we record increasing net operating income (“NOI”) in our same property portfolio typically depends upon our ability to garner higher rental revenues, whether from higher average occupancy, higher GAAP rents per rentable square foot or higher cost recovery income, that exceed any corresponding growth in operating expenses. Consolidated same property NOI was $9.4 million, or 1.8%, lower in 2025 as compared to 2024 due to a decrease of $13.9 million in same property revenues, partially offset by a decrease of $4.6 million in same property expenses.
In addition to the effect of consolidated same property NOI, whether or not NOI increases typically depends upon whether the NOI from our acquired properties and recently completed development projects exceeds the lost NOI from property dispositions. NOI was $9.0 million, or 1.6%, lower in 2025 as compared to 2024 primarily due to lost NOI from property dispositions and lower consolidated same property NOI, partially offset by NOI from 2025 property acquisitions in Raleigh and Charlotte and recently completed development projects in Raleigh and Charlotte. We expect NOI to be higher in 2026 as compared to 2025 due to NOI from the 2025 property acquisitions in Raleigh and Charlotte, 2026 property acquisitions in Dallas and Raleigh, recently completed development projects in Raleigh and an anticipated increase in consolidated same property NOI, partially offset by lost NOI from property dispositions.
Cash Flows
In calculating net cash related to operating activities, depreciation and amortization, which are non-cash expenses, are added back to net income. We have historically generated a positive amount of cash from operating activities. From period to period, cash flow from operations primarily depends upon changes in our net income, as discussed more fully below under “Results of Operations,” changes in receivables and payables and net additions or decreases in our overall portfolio.
Net cash related to investing activities generally relates to capitalized costs incurred for leasing and major building improvements and our acquisition, development, disposition and joint venture activity. During periods of significant net acquisition and/or development activity, our cash used in such investing activities will generally exceed cash provided by investing activities, which typically consists of cash received upon the sale of properties and distributions from our joint ventures.
Net cash related to financing activities generally relates to distributions, incurrence and repayment of debt, and issuances, repurchases or redemptions of Common Stock, Common Units and Preferred Stock. We use a significant amount of our cash to fund distributions. Whether or not we have increases in the outstanding balances of debt during a period depends generally upon the net effect of our acquisition, disposition, development and joint venture activity. We generally use our revolving credit
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facility for daily working capital purposes, which means that during any given period, in order to minimize interest expense, we may record significant repayments and borrowings under our revolving credit facility.
For a discussion regarding dividends and distributions, see “Liquidity and Capital Resources - Dividends and Distributions.”
Liquidity and Capital Resources
We continue to maintain a conservative and flexible balance sheet and believe we have ample liquidity to fund our operations and growth prospects. As of January 30, 2026, we had approximately $46 million of existing cash and $170.0 million drawn on our $750 million revolving credit facility, which is scheduled to mature in January 2028 (but which can be extended for two additional six-month periods at our option). As of December 31, 2025, our leverage ratio, as measured by the ratio of our mortgages and notes payable and outstanding preferred stock to the undepreciated book value of our assets, was 43.7%, and there were 111.9 million diluted shares of Common Stock outstanding.
Rental and other revenues are our principal source of funds to meet our short-term liquidity requirements. Other sources of funds for short-term liquidity needs include available working capital and borrowings under our revolving credit facility. Our short-term liquidity requirements primarily consist of operating expenses, interest and principal amortization on our debt, distributions and capital expenditures, including building improvement costs, tenant improvement costs and lease commissions. Building improvements are capital costs to maintain or enhance existing buildings not typically related to a specific customer. Tenant improvements are the costs required to customize space for our customers’ specific needs. We anticipate that our available cash and cash equivalents and cash provided by operating activities and planned financing activities, including borrowings under our revolving credit facility, will be adequate to meet our short-term liquidity requirements. We use our revolving credit facility for working capital purposes, the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. The continued ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates.
We generally believe existing cash and rental and other revenues will continue to be sufficient to fund our short-term liquidity needs such as funding operating and general and administrative expenses, paying interest expense, maintaining our existing quarterly dividend and funding existing portfolio capital expenditures, including building improvement costs, tenant improvement costs and lease commissions.
Our long-term liquidity uses generally consist of the retirement or refinancing of debt upon maturity, funding of building improvements, new building developments (including our proportionate share of joint venture developments) and land infrastructure projects and funding acquisitions of buildings and development land (including our proportionate share of joint venture acquisitions). Additionally, we may, from time to time, retire outstanding equity and/or debt securities through redemptions, open market repurchases, privately negotiated acquisitions or otherwise.
We expect to meet our long-term liquidity needs through a combination of:
•cash flows from operating activities;
•issuance of debt securities by the Operating Partnership;
•secured debt;
•bank term loans;
•borrowings under our revolving credit facility;
•issuance of equity securities by the Company or the Operating Partnership; and
•the disposition of non-core assets.
We have no debt scheduled to mature prior to 2027. We generally believe we will be able to satisfy future obligations with existing cash, borrowings under our revolving credit facility, new bank term loans, issuance of other unsecured debt, mortgage debt and/or proceeds from the sale of additional non-core assets.
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Investment Activity
As noted above, a key tenet of our strategic plan is to continuously upgrade the quality of our office portfolio through acquisitions, dispositions and development. We generally seek to acquire and develop office buildings that improve the average quality of our overall portfolio and deliver consistent and sustainable value for our stockholders over the long-term. Whether or not an asset acquisition or new development results in higher per share net income or funds from operations (“FFO”) in any given period depends upon a number of factors, including whether the NOI for any such period exceeds the actual cost of capital used to finance the acquisition or development. Additionally, given the length of construction cycles, development projects are not placed in service until several years after commencement in some cases. Sales of non-core assets could result in lower per share net income or FFO in any given period in the event the return on the resulting use of proceeds does not exceed the capitalization rate on the sold properties.
Results of Operations
Comparison of 2025 to 2024
Rental and Other Revenues
Rental and other revenues were $19.8 million, or 2.4%, lower in 2025 as compared to 2024 primarily due to lost revenue from property dispositions, lower consolidated same property revenues and lost revenues from properties taken out of service, which decreased rental and other revenues by $18.8 million, $13.9 million and $6.2 million, respectively. Same property rental and other revenues were lower primarily due to a decrease in average occupancy and lower cost recoveries, partially offset by higher average GAAP rents per rentable square foot, higher termination fees and lower credit losses. These decreases were partially offset by an increase of $17.8 million from 2025 property acquisitions in Charlotte and Raleigh and an increase of $1.6 million from recently completed development projects in Raleigh and Charlotte. We expect rental and other revenues to be higher in 2026 as compared to 2025 due to higher revenue from 2025 property acquisitions in Charlotte and Raleigh, 2026 property acquisitions in Raleigh and Dallas, recently completed development projects in Raleigh and an anticipated increase in consolidated same property revenue, partially offset by lost revenue from property dispositions.
Operating Expenses
Rental property and other expenses were $10.8 million, or 4.0%, lower in 2025 as compared to 2024 primarily due to property dispositions, lower consolidated same property expenses and lower expenses from properties taken out of service, which decreased operating expenses by $7.9 million, $4.6 million and $2.0 million, respectively. Same property operating expenses were lower primarily due to lower property taxes, partially offset by higher utilities and contract services. These decreases were partially offset by a $4.4 million increase in expenses from 2025 property acquisitions in Charlotte and Raleigh. We expect rental property and other expenses to be higher in 2026 as compared to 2025 due to higher expenses from 2025 property acquisitions in Charlotte and Raleigh, 2026 property acquisitions in Raleigh and Dallas and an anticipated increase in consolidated same property expenses, partially offset by property dispositions.
Depreciation and amortization was $4.1 million, or 1.4%, lower in 2025 as compared to 2024 primarily due to accelerated depreciation and amortization of tenant improvements and deferred leasing costs in 2024, as well as property dispositions. The accelerated depreciation and amortization in 2024 was associated with the cancellation of a lease with a backfill customer for 110,000 square feet in the former Tivity building in Nashville that was originally scheduled to commence in the third quarter of 2024. These decreases were partially offset by 2025 property acquisitions in Charlotte and Raleigh. We expect depreciation and amortization to be higher in 2026 as compared to 2025 due to 2025 property acquisitions in Charlotte and Raleigh and 2026 property acquisitions in Raleigh and Dallas, partially offset by property dispositions.
We recorded an impairment charge of $8.8 million in 2025 to lower the carrying amount of two non-core, out of service assets at Century Center in Atlanta to their estimated fair values. For one of the Century Center assets, the impairment resulted from a change in our assumptions about the use of the asset. We determined that the highest and best use of this asset is residential and that the existing out-of-service office building will ultimately be demolished, either by us or an eventual buyer of the site. We recorded an impairment charge of $24.6 million in 2024 to lower the carrying amount of 625 Liberty (formerly known as EQT Plaza) in Pittsburgh to its estimated fair value.
General and administrative expenses were $1.6 million, or 3.8%, lower in 2025 as compared to 2024, primarily due to lower incentive compensation and fewer predevelopment cost write-offs. We expect general and administrative expenses to be higher in 2026 as compared to 2025 due to higher salaries and benefits.
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Interest Expense
Interest expense was $5.2 million, or 3.6%, higher in 2025 as compared to 2024 primarily due to higher average debt balances and lower capitalized interest, partially offset by lower average interest rates. We expect interest expense to be higher in 2026 as compared to 2025 due to higher average debt balances and lower capitalized interest.
Other Income
Other income was $2.8 million lower in 2025 as compared to 2024 primarily due to a 2024 refund of $5.8 million in the aggregate of Tennessee franchise taxes paid for the 2020 through 2023 tax years. During the second quarter of 2024, the State of Tennessee modified the methodology for calculating franchise taxes. The modification lowers our annual franchise tax obligation and was allowed to be applied retrospectively back to 2020. This decrease was partially offset by $3.0 million of proceeds received in 2025 from the Florida Department of Transportation for the impact of roadway improvements adjacent to a non-core property in Tampa.
Gains on Disposition of Property
Gains on disposition of property were $60.3 million higher in 2025 as compared to 2024. The 2025 gains primarily related to building dispositions in Atlanta, Richmond, Tampa and Raleigh and land dispositions in Orlando and Raleigh. The 2024 gains related to building dispositions in Raleigh and a land disposition in Greensboro.
Loss on Disposition of Investment in Unconsolidated Affiliates
In 2025, we sold our 50.0% interest in the Highwoods-Markel Associates, LLC joint venture (the “Markel joint venture”) to Markel Corporation (“Markel”). As a result, we recognized a loss of $4.7 million. We recorded no such loss in 2024.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates was $1.8 million lower in 2025 as compared to 2024 primarily due to higher net losses from our 23Springs and Granite Park Six joint ventures, which own newly constructed buildings that were completed in the first quarter of 2025 and the third quarter of 2023, respectively, but have not yet stabilized. These decreases were partially offset by lower interest expense from our McKinney & Olive joint venture due to the payoff of a mortgage loan in the third quarter of 2024.
Earnings Per Common Share - Diluted
Diluted earnings per common share was $0.51 higher in 2025 as compared to 2024 due to an increase in net income for the reasons discussed above.
Comparison of 2024 to 2023
For a comparison of 2024 to 2023, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” in our 2024 Annual Report on Form 10-K.
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Liquidity and Capital Resources
Statements of Cash Flows
We report and analyze our cash flows based on operating activities, investing activities and financing activities. The following table sets forth the changes in the Company’s cash flows (in thousands):
Year Ended December 31,
Comparison of 2025 to 2024
The change in net cash provided by operating activities in 2025 as compared to 2024 was primarily due to changes in operating liabilities, lower occupancy and property dispositions, partially offset by net cash from property acquisitions in Charlotte and Raleigh. We expect net cash related to operating activities to be higher in 2026 as compared to 2025 due to 2025 property acquisitions in Charlotte and Raleigh, 2026 property acquisitions in Raleigh and Dallas and higher occupancy, partially offset by property dispositions.
The change in net cash used in investing activities in 2025 as compared to 2024 was primarily due to 2025 property acquisitions in Charlotte and Raleigh, partially offset by higher net proceeds from dispositions and lower investments in unconsolidated affiliates. We expect uses of cash for investing activities in 2026 to be primarily driven by whether or not we acquire and commence development of additional office buildings in the BBDs of our markets. We expect these uses of cash for investing activities will be fully or partially offset by proceeds from property dispositions in 2026.
The change in net cash used in financing activities in 2025 as compared to 2024 was primarily due to higher net debt borrowings in 2025. Assuming the net effect of our acquisition, disposition and development activity in 2026 results in an increase to our assets, we would expect outstanding debt and/or Common Stock balances to increase.
Comparison of 2024 to 2023
For a comparison of 2024 to 2023, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our 2024 Annual Report on Form 10-K.
Capitalization
The following table sets forth the Company’s capitalization (in thousands, except per share amounts):
December 31,
Mortgages and notes payable, net, at recorded book value $ 3,554,178 $ 3,293,559
Preferred Stock, at liquidation value $ 26,691 $ 28,811
Common Units outstanding (not owned by the Company) 2,044 2,151
Per share stock price at year end $ 25.82 $ 30.58
As of December 31, 2025, our mortgages and notes payable and outstanding preferred stock represented 55.3% of our total capitalization and 43.7% of the undepreciated book value of our assets. See also “Executive Summary - Liquidity and Capital Resources.”
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Our mortgages and notes payable as of December 31, 2025 consisted of $703.4 million of secured indebtedness with a weighted average interest rate of 4.44% and $2,866.7 million of unsecured indebtedness with a weighted average interest rate of 4.46%. The secured indebtedness was collateralized by real estate assets with an undepreciated book value of $1,263.4 million. As of December 31, 2025, $375.0 million of our debt bears interest at floating rates.
Investment Activity
- Acquisitions
In the normal course of business, we regularly evaluate potential acquisitions. As a result, from time to time, we may have one or more potential acquisitions under consideration that are in varying stages of evaluation, negotiation or due diligence, including potential acquisitions that are subject to non-binding letters of intent or enforceable contracts. Consummation of any transaction is subject to a number of contingencies, including the satisfaction of customary closing conditions. No assurances can be provided that we will acquire any properties in the future. See “Item 1A. Risk Factors – Risks Related to our Investment Activity – Recent and future acquisitions and development properties may fail to perform in accordance with our expectations and may require renovation and development costs exceeding our estimates.”
During the fourth quarter of 2025, we acquired 6HUNDRED, a 411,000 square foot office building in Uptown Charlotte. Our total purchase price, net of closing credits, was $193.4 million, including capitalized acquisition costs. The assets acquired and liabilities assumed were recorded at relative fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.
During the third quarter of 2025, we acquired the Legacy Union parking garage located at 720 South Church Street in Uptown Charlotte for a total purchase price, including capitalized acquisition costs, of $110.2 million. This 3,057-space garage supports the parking needs for 1.2 million square feet of Highwoods-owned office at Legacy Union, which consists of Bank of America Tower and SIX50 at Legacy Union, and is connected to these office buildings via a skybridge. The assets acquired and liabilities assumed were recorded at relative fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.
During the first quarter of 2025, we acquired Advance Auto Parts Tower, a 346,000 square foot office building in Raleigh, for a total purchase price, including capitalized acquisition costs, of $137.9 million. The assets acquired and liabilities assumed were recorded at relative fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.
- Dispositions
On February 6, 2026, we sold three buildings in Richmond for a sales price of $42.3 million and expect to record a gain on disposition of property of $17.0 million.
During the fourth quarter of 2025, we sold threebuildings in Atlanta, Tampa and Raleigh and land in Orlando and Raleigh for an aggregate sales price of $43.4 million and recorded aggregate gains on disposition of property of $19.3 million.
During the third quarter of 2025, we sold a building in Richmond for a sales price of $16.0 million and recorded a gain on disposition of property of $5.7 million.
During the first quarter of 2025, we sold three buildings in Tampa and land in Pittsburgh for an aggregate sales price of $146.3 million and recorded aggregate net gains on disposition of property of $82.2 million.
- Impairments
During the third quarter of 2025, we recorded an impairment charge of $8.8 million to lower the carrying amount of two non-core, out-of-service assets at Century Center in Atlanta to their estimated fair values.
- Joint Venture Investments
On January 12, 2026, we contributed $16.2 million of preferred equity to the Granite Park Six joint venture, in which we own a 50.0% interest, which used such funds to pay off at maturity the $16.2 million outstanding balance of an up to $115.0 million construction loan. The preferred equity contributed by us will be entitled to receive monthly distributions at a rate of 8.0%.
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On January 9, 2026, we acquired Bloc 83, a two-building, 492,000 square foot mixed-use asset in CBD Raleigh, through the formation of a joint venture (“Bloc 83 joint venture”) with the North Carolina Investment Authority in which we initially own a 10.0% interest. We retained an option to increase our ownership interest to 50.0%. The Bloc 83 joint venture has an anticipated total investment of $210.5 million, which includes planned near-term building improvements and transaction costs. The joint venture’s planned total investment will be funded with $21.0 million of common equity contributed by us and $189.5 million of common equity contributed by the North Carolina Investment Authority. The North Carolina Investment Authority has the right to sell to us its interest in the joint venture under certain circumstances for fair market value at any time after the fifth anniversary of the formation date.
On January 9, 2026, we expanded our Dallas market presence by acquiring The Terraces, a 173,000 square foot office building in the Preston Center BBD of Dallas, through the formation of a joint venture (“The Terraces joint venture”) with Granite Properties (“Granite”) in which we own an 80.0% interest. The Terraces joint venture has an anticipated total investment of $109.3 million, which includes planned near-term building improvements and transaction costs. The joint venture’s planned total investment will be funded with $64.3 million of preferred equity contributed by us, $36.0 million of common equity contributed by us and $9.0 million of common equity contributed by Granite. The preferred equity contributed by us will be entitled to receive monthly distributions at a rate of 5.75%. We have a right to buy, and Granite has a right to sell to us, Granite’s interest in the joint venture under certain circumstances for fair market value at any time after the third anniversary of the formation date.
During the fourth quarter of 2025, we sold our 50.0% interest in the Markel joint venture to Markel. As a result, we recognized a loss on disposition of investment in unconsolidated affiliate of $4.7 million.
Financing Activity
We have equity distribution agreements with each of Wells Fargo Securities, LLC, BofA Securities, Inc., BTIG, LLC, Jefferies LLC, J.P. Morgan Securities LLC, TD Securities (USA) LLC and Truist Securities, Inc. pursuant to which the Company may offer and sell up to $300.0 million in aggregate gross sales price of shares of Common Stock from time to time through such firms, acting as agents of the Company or as principals. Sales of the shares, if any, may be made by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of such firms (which may include block trades). During the fourth quarter of 2025, the Company issued 0.3 million shares of Common Stock at an average gross sales price of $32.06 per share and received net proceeds, after sales commissions, of $10.7 million. We paid an aggregate of $0.2 million in sales commissions to Jefferies LLC and J.P. Morgan Securities LLC during the fourth quarter of 2025.
Our $750.0 million unsecured revolving credit facility is scheduled to mature in January 2028 (but can be extended for two additional six-month periods at our option assuming no defaults have occurred). The interest rate on our revolving credit facility is SOFR plus a related spread adjustment of 10 basis points and a borrowing spread of 85 basis points, based on current credit ratings. The annual facility fee is 20 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. The interest rate may be adjusted upward or downward by 2.5 basis points depending upon whether or not we achieve certain pre-determined sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. There was $25.0 million and $170.0 million outstanding under our revolving credit facility as of December 31, 2025 and January 30, 2026, respectively. As of both December 31, 2025 and January 30, 2026, we had $0.1 million of outstanding letters of credit, which reduce the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility as of December 31, 2025 and January 30, 2026 was $724.9 million and $579.9 million, respectively.
During the fourth quarter of 2025, the Operating Partnership issued $350.0 million aggregate principal amount of 5.350% notes due January 2033, less original issuance discount of $1.7 million. These notes were priced to yield 5.431%. Underwriting fees and other expenses totaled $3.1 million and will be amortized over the term of the notes. The net proceeds from the issuance were used to repay amounts outstanding under our revolving credit facility and for general corporate purposes.
During the third quarter of 2025, we modified our $200.0 million unsecured bank term loan to extend the maturity date from May 2026 to January 2029. The term can be extended for two additional years at our option, assuming no defaults have occurred. The interest rate, based on current credit ratings, is SOFR plus 95 basis points. The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. The interest rate may be adjusted upward or downward by 2.5 basis points depending upon whether or not we achieve certain pre-determined sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. We incurred $2.0 million of debt
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issuance costs, which are being amortized along with certain existing unamortized debt issuance costs over the remaining term of our modified term loan, and recorded $0.1 million of loss on debt extinguishment.
We regularly evaluate the financial condition of the financial institutions that participate in our credit facilities and as counterparties under any interest rate swap agreements using publicly available information. Based on this review, we currently expect these financial institutions to perform their obligations under our existing facilities and any swap agreements.
For information regarding our interest hedging activities and other market risks associated with our debt financing activities, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”
Covenant Compliance
We are currently in compliance with financial covenants and other requirements with respect to our consolidated debt. Although we expect to remain in compliance with these covenants and ratios for at least the next year, depending upon our future operating performance, property and financing transactions and general economic conditions, we cannot provide any assurances that we will continue to be in compliance.
Our revolving credit facility and bank term loans require us to comply with customary operating covenants and various financial requirements. Upon an event of default on our revolving credit facility, the lenders having at least 51.0% of the total commitments under our revolving credit facility can accelerate all borrowings then outstanding, and we could be prohibited from borrowing any further amounts under our revolving credit facility, which would adversely affect our ability to fund our operations. In addition, certain of our unsecured debt agreements contain cross-default provisions giving the unsecured lenders the right to declare a default if we are in default under more than $35.0 million with respect to other loans in some circumstances.
As of December 31, 2025, the Operating Partnership had the following unsecured notes outstanding ($ in thousands):
Face Amount Carrying Amount Stated Interest Rate Effective Interest Rate (1)
__________
(1)The effective rate included in the table above excludes the amortized impact of unrealized losses or gains associated with the termination of related forward-starting swaps, if any, and underwriting fees and other expenses.
The indenture that governs these outstanding notes requires us to comply with customary operating covenants and various financial ratios. The trustee or the holders of at least 25.0% in principal amount of any series of notes can accelerate the principal amount of such series upon written notice of a default that remains uncured after 60 days.
We may not be able to repay, refinance or extend any or all of our debt at maturity or upon any acceleration. If any refinancing is done at higher interest rates, the increased interest expense could adversely affect our cash flow and ability to pay distributions. Any such refinancing could also impose tighter financial ratios and other covenants that restrict our ability to take actions that could otherwise be in our best interest, such as funding new development activity, making opportunistic acquisitions, repurchasing our securities or paying distributions.
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Contractual Obligations
The following table sets forth a summary regarding our known material contractual obligations on a cash basis, including required interest payments for those items that are interest bearing, as of December 31, 2025 (in thousands):
Amounts due during the years ending December 31,
Mortgages and Notes Payable:
Purchase Obligations:
Other Commitments:
Advances to unconsolidated affiliates (3) 15,181 15,181 — — — — —
Operating and Finance Lease Obligations:
__________
(1)Excludes amortization of premiums, discounts, debt issuance costs and/or purchase accounting adjustments.
(2)Consists primarily of commitments under signed leases and contracts for operating properties (excluding tenant-funded tenant improvements), contracts for development/redevelopment projects and unfunded joint venture equity contributions agreed to at formation. Tenant improvements that can be used at the option of the customer at any time during the remaining lease term have been reflected in 2026. The timing of these lease and contractual commitments may fluctuate.
(3)Includes estimated draws on loan commitments to our joint ventures related to our unconsolidated development activity.
The interest payments due on mortgages and notes payable are based on the stated rates for the fixed rate debt and on the rates in effect as of December 31, 2025 for the variable rate debt. The weighted average interest rate on our fixed and variable rate debt was 4.43% and 4.63%, respectively, as of December 31, 2025. For additional information about our operating and finance lease obligations, mortgages and notes payable and purchase obligations, see Notes 2, 6 and 7, respectively, to our Consolidated Financial Statements.
Dividends and Distributions
To maintain its qualification as a REIT, the Company must pay dividends to stockholders that are at least 90.0% of its annual REIT taxable income, excluding net capital gains. The partnership agreement requires the Operating Partnership to distribute at least enough cash for the Company to be able to pay such dividends. The Company’s REIT taxable income, as determined by the federal tax laws, does not equal its net income under accounting principles generally accepted in the United States of America (“GAAP”). In addition, although capital gains are not required to be distributed to maintain REIT status, capital gains, if any, are subject to federal and state income tax unless such gains are distributed to stockholders. See “Item 1A. Risk Factors – Risks Related to an Investment in our Securities – Cash distributions reduce the amount of cash that would otherwise be available for other business purposes, including funding debt maturities, reducing debt or future growth initiatives.”
The amount of future distributions that will be made is at the discretion of the Company’s Board of Directors. The following factors will affect such cash flows and, accordingly, influence the decisions of the Company’s Board of Directors regarding dividends and distributions:
•projections with respect to future REIT taxable income expected to be generated by the Company;
•debt service requirements after taking into account debt covenants and the repayment and restructuring of certain indebtedness and the availability of alternative sources of debt and equity capital and their impact on our ability to refinance existing debt and grow our business;
•scheduled increases in base rents of existing leases;
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•changes in rents attributable to the renewal of existing leases or replacement leases;
•changes in occupancy rates at existing properties and execution of leases for newly acquired or developed properties;
•changes in operating expenses;
•anticipated leasing capital expenditures attributable to the renewal of existing leases or new leases;
•anticipated building improvements; and
•expected cash flows from financing and investing activities, including from the sales of assets generating taxable gains to the extent such assets are not sold in a tax-deferred exchange under Section 1031 of the Internal Revenue Code or another tax-free or tax-deferred transaction.
On January 29, 2026, the Company declared a cash dividend of $0.50 per share of Common Stock, which is payable on March 10, 2026 to stockholders of record as of February 17, 2026.
The Company declared and paid a cash dividend of $0.50 per share of Common Stock in each quarter of 2025.
Current and Future Cash Needs
We anticipate that our available cash and cash equivalents, cash flows from operating activities and other available financing sources, including the issuance of debt securities by the Operating Partnership, secured debt, bank term loans, borrowings under our revolving credit facility, the issuance of equity securities by the Company or the Operating Partnership and the disposition of non-core assets, will be adequate to meet our short-term liquidity requirements. We generally believe existing cash and rental and other revenues will continue to be sufficient to fund operating and general and administrative expenses, interest expense, our existing quarterly dividend and existing portfolio capital expenditures, including building improvement costs, tenant improvement costs and lease commissions.
We had $27.4 million of cash and cash equivalents as of December 31, 2025. The unused capacity of our revolving credit facility as of December 31, 2025 and January 30, 2026, respectively, was $724.9 million and $579.9 million.
We typically have a currently effective automatic shelf registration statement on Form S-3 with the SEC pursuant to which, at any time and from time to time, in one or more offerings on an as-needed basis, the Company may sell an indefinite amount of common stock, preferred stock and depositary shares and the Operating Partnership may sell an indefinite amount of debt securities, subject to our ability to effect offerings on satisfactory terms based on prevailing market conditions.
The Company from time to time enters into equity distribution agreements with a variety of firms pursuant to which the Company may offer and sell shares of common stock from time to time through such firms, acting as agents of the Company or as principals. Sales of the shares, if any, may be made by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of such firms (which may include block trades).
During the remainder of 2026, we expect to sell up to an additional $250 million of properties no longer considered to be core assets due to location, age, quality and/or overall strategic fit. We can make no assurance, however, that we will sell any additional non-core assets or, if we do, what the timing or terms of any such sale will be.
See also “Executive Summary - Liquidity and Capital Resources.”
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from our estimates.
The policies used in the preparation of our Consolidated Financial Statements are described in Note 1 to our Consolidated Financial Statements. However, certain of our significant accounting policies contain an increased level of assumptions used or estimates made in determining their impact in our Consolidated Financial Statements. Management has reviewed and
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determined the appropriateness of our critical accounting policies and estimates with the audit committee of the Company’s Board of Directors.
We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the following:
•Acquisition of real estate assets and liabilities;
•Impairments of real estate assets; and
•Credit losses on lease related receivables.
Acquisition of Real Estate Assets and Liabilities
Primarily all of our acquisitions of real estate assets and liabilities are accounted for as asset acquisitions. As such, the purchase prices of acquired tangible and intangible assets and liabilities are recorded and allocated at fair value on a relative basis. The recorded allocations are based on estimated cash flow projections of the properties acquired which incorporates discount, capitalization and interest rates as well as available comparable market information. See Note 1 to our Consolidated Financial Statements for additional details regarding our specific procedures for purchase price allocation.
We use considerable judgment in our estimates of cash flow projections, discount, capitalization and interest rates, fair market lease rates, carrying costs during hypothetical expected lease-up periods and costs to execute similar leases. While our methodology for purchase price allocation did not change during the year ended December 31, 2025, the real estate market is fluid and our assumptions are based on information currently available in the market at the time of acquisition. Significant increases or decreases in these key estimates, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being acquired.
Impairments of Real Estate Assets
We record impairments of our real estate assets classified as held for use when the carrying amount of the asset exceeds the sum of its undiscounted future operating and residual cash flows at the difference between estimated fair value of the asset and the carrying amount. We record impairments of our real estate assets classified as held for sale at the lower of the carrying amount or estimated fair value using the estimated or contracted sales price less costs to sell. See Note 1 to our Consolidated Financial Statements for additional details regarding our specific procedures with respect to impairments of our real estate assets classified as held for use and held for sale.
Any real estate assets recorded at fair value on a non-recurring basis as a result of our impairment analysis are valued using unobservable local and national industry market data such as comparable sales, appraisals, brokers’ opinions of value and/or terms of definitive sales contracts. Additionally, the analysis includes considerable judgment in our estimates of hold periods, projected cash flows and discount and capitalization rates. Significant increases or decreases in any of these inputs, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being assessed.
Credit Losses on Lease Related Receivables
Credit losses on lease related receivables, which include accounts receivable and accrued straight-line rents receivable, are recorded as a reduction to rental and other revenues when the amount recorded is determined, in management’s judgment, to not be probable of collection. Management’s evaluation of collectability requires the exercise of considerable judgment in assessing the current credit quality of our customers using payment history and other available information about the financial condition of the customers. During the year ended December 31, 2025, we have not experienced significant credit losses based on management’s evaluation of collectability of our lease receivables. If management’s assumptions regarding the collectability of lease related receivables prove incorrect, we could experience credit losses in excess of what was recognized in rental and other revenues.
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Non-GAAP Information
The Company believes that FFO, FFO available for common stockholders and FFO available for common stockholders per share are metrics that are beneficial to management and investors and are important indicators of the performance of any equity REIT. Because these FFO calculations exclude such factors as depreciation, amortization and impairments of real estate assets and gains or losses from sales of operating real estate assets, which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful life estimates, they facilitate comparisons of operating performance between periods and between other REITs. Management believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, management believes the use of FFO, FFO available for common stockholders and FFO available for common stockholders per share, together with the required GAAP presentations, provides a more complete understanding of the Company’s performance relative to its competitors and a more informed and appropriate basis on which to make decisions involving operating, financing and investing activities.
FFO, FFO available for common stockholders and FFO available for common stockholders per share are non-GAAP financial measures and therefore do not represent net income or net income per share as defined by GAAP. Net income and net income per share as defined by GAAP are the most relevant measures in determining the Company’s operating performance because these FFO measures include adjustments that investors may deem subjective, including adding back expenses such as depreciation, amortization and impairments. Furthermore, FFO available for common stockholders per share does not depict the amount that accrues directly to the stockholders’ benefit. Accordingly, FFO, FFO available for common stockholders and FFO available for common stockholders per share should never be considered as alternatives to net income, net income available for common stockholders, or net income available for common stockholders per share as indicators of the Company’s operating performance.
The Company’s presentation of FFO is consistent with FFO as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), which is calculated as follows:
•Net income/(loss) computed in accordance with GAAP;
•Less net income, or plus net loss, attributable to noncontrolling interests in consolidated affiliates;
•Plus depreciation and amortization of depreciable operating properties;
•Less gains, or plus losses, from sales of depreciable operating properties, plus impairments on depreciable operating properties and excluding items that are classified as extraordinary items under GAAP;
•Plus or minus our share of adjustments, including depreciation and amortization of depreciable operating properties, for unconsolidated joint venture investments (to reflect funds from operations on the same basis); and
•Plus or minus adjustments for depreciation and amortization and gains/(losses) on sales of depreciable operating properties, plus impairments on depreciable operating properties, and noncontrolling interests in consolidated affiliates related to discontinued operations.
In calculating FFO, the Company includes net income attributable to noncontrolling interests in the Operating Partnership, which the Company believes is consistent with standard industry practice for REITs that operate through an UPREIT structure. The Company believes that it is important to present FFO on an as-converted basis since all of the Common Units not owned by the Company are redeemable on a one-for-one basis for shares of its Common Stock.
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The following table sets forth the Company’s FFO, FFO available for common stockholders and FFO available for common stockholders per share (in thousands, except per share amounts):
Year Ended December 31,
Funds from operations:
Impairments of depreciable properties 8,800 24,600 —
(Gain) on deconsolidation of affiliate — — (11,778)
Loss on disposition of investment in unconsolidated affiliate 4,700 — —
Unconsolidated affiliates:
__________
(1)Includes assumed conversion of all potentially dilutive Common Stock equivalents.
In addition, the Company believes NOI and same property NOI are useful supplemental measures of the Company’s property operating performance because such metrics provide a performance measure of the revenues and expenses directly involved in owning real estate assets and a perspective not immediately apparent from net income or FFO. The Company defines NOI as rental and other revenues less rental property and other expenses. The Company defines cash NOI as NOI less lease termination fees, straight-line rent, amortization of lease incentives and amortization of acquired above and below market leases. Other REITs may use different methodologies to calculate NOI, same property NOI and cash NOI.
As of December 31, 2025, our same property portfolio consisted of 143 wholly owned and joint venture in-service properties encompassing 26.0 million rentable square feet that were owned during the entirety of the periods presented (from January 1, 2024 to December 31, 2025). As of December 31, 2024, our same property portfolio consisted of 152 wholly owned in-service properties encompassing 27.2 million rentable square feet that were owned during the entirety of the periods presented (from January 1, 2023 to December 31, 2024). The change in our same property portfolio was due to the removal of seven properties encompassing 0.8 million rentable square feet that were sold during 2025 and two properties encompassing 0.4 million rentable square feet that were taken out of service during 2025 due to a change in our assumptions about the use of such assets.
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The following table sets forth the Company’s NOI, same property NOI and same property cash NOI (in thousands):
Year Ended December 31,
Equity in earnings of unconsolidated affiliates (2,369) (4,158)
Loss on disposition of investment in unconsolidated affiliate 4,700 —
Impairments of real estate assets 8,800 24,600
Non same property and other net operating income (18,341) (17,928)
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The effects of potential changes in interest rates are discussed below. Our market risk discussion includes “forward-looking statements” and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in interest rates. Actual future results may differ materially from those presented. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and the Notes to Consolidated Financial Statements for a description of our accounting policies and other information related to these financial instruments.
We borrow funds at a combination of fixed and variable rates. Borrowings under our revolving credit facility and bank term loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings, typically bears interest at fixed rates. Our interest rate risk management objectives are to generally limit the impact of interest rate changes on earnings and cash flows and lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to existing and prospective debt instruments. We generally do not hold or issue these derivative contracts for trading or speculative purposes.
As of December 31, 2025, we had $3,195.2 million principal amount of fixed rate debt outstanding, a $341.2 million increase as compared to December 31, 2024. The estimated aggregate fair market value of this debt was $3,113.5 million. If interest rates had been 100 basis points higher, the aggregate fair market value of our fixed rate debt would have been $121.5 million lower. If interest rates had been 100 basis points lower, the aggregate fair market value of our fixed rate debt would have been $128.6 million higher.
As of December 31, 2025, we had $375.0 million of variable rate debt outstanding not protected by interest rate hedge contracts, a $79.0 million decrease as compared to December 31, 2024. If the weighted average interest rate on this variable rate debt had been 100 basis points higher or lower, the annual interest expense as of December 31, 2025 would increase or decrease by $3.8 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A. CONTROLS AND PROCEDURES
General
The purpose of this section is to discuss our controls and procedures. The statements in this section represent the conclusions of Theodore J. Klinck, the Company’s President and Chief Executive Officer (“CEO”), and Brendan C. Maiorana, the Company’s Executive Vice President and Chief Financial Officer (“CFO”).
The CEO and CFO evaluations of our controls and procedures include a review of the controls’ objectives and design, the controls’ implementation by us and the effect of the controls on the information generated for use in this Annual Report. We seek to identify data errors, control problems or acts of fraud and confirm that appropriate corrective action, including process improvements, is undertaken. Our controls and procedures are also evaluated on an ongoing basis by or through the following:
•activities undertaken and reports issued by employees responsible for testing our internal control over financial reporting;
•quarterly sub-certifications by representatives from appropriate business and accounting functions to support the CEO’s and CFO’s evaluations of our controls and procedures;
•other personnel in our finance and accounting organization;
•members of our internal disclosure committee; and
•members of the audit committee of the Company’s Board of Directors.
We do not expect that our controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of controls and procedures must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Annual Report on the Company’s Internal Control Over Financial Reporting
The Company’s management is required to establish and maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of assets;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Under the supervision of the Company’s CEO and CFO, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025 based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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We have concluded that, as of December 31, 2025, the Company’s internal control over financial reporting was effective. Deloitte & Touche LLP, our independent registered public accounting firm, has issued their attestation report, which is included below, on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025.
Management’s Annual Report on the Operating Partnership’s Internal Control Over Financial Reporting
The Operating Partnership is also required to establish and maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Under the supervision of the Company’s CEO and CFO, we conducted an evaluation of the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2025 based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have concluded that, as of December 31, 2025, the Operating Partnership’s internal control over financial reporting was effective. SEC rules do not require us to obtain an attestation report of Deloitte & Touche LLP on the effectiveness of the Operating Partnership’s internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Highwoods Properties, Inc.:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Highwoods Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2025, of the Company and our report dated February 10, 2026, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on the Company’s Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte and Touche LLP
Raleigh, North Carolina
February 10, 2026
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Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2025 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There were also no changes in the Operating Partnership’s internal control over financial reporting during the fourth quarter of 2025 that materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
Disclosure Controls and Procedures
SEC rules require us to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our annual and periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As defined in Rule 13a-15(e) under the Exchange Act, disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management, including the Company’s CEO and CFO, to allow for timely decisions regarding required disclosure. The Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at the end of the period covered by this Annual Report. The Company’s CEO and CFO also concluded that the Operating Partnership’s disclosure controls and procedures were effective at the end of the period covered by this Annual Report.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about the Company’s executive officers and directors, the code of ethics that applies to the Company’s chief executive officer and senior financial officers, which is posted on our website, and certain corporate governance matters is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with the Company's annual meeting of stockholders to be held on May 12, 2026. No changes have been made to the procedures by which stockholders may recommend nominees to the Company’s board of directors since the 2025 annual meeting, which was held on May 13, 2025.
The Company has adopted insider trading policies and procedures governing the purchase, sale and/or other dispositions of our securities by directors, officers and employees that are reasonably designed to promote compliance with insider trading laws, rules and regulations and NYSE listing standards. No director or officer of the Company adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.
See Item X in Part I of this Annual Report for biographical information regarding the Company’s executive officers. The Company is the sole general partner of the Operating Partnership.
ITEM 11. EXECUTIVE COMPENSATION
Information about the compensation of the Company’s directors and executive officers is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 12, 2026.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information about the beneficial ownership of Common Stock and the Company’s equity compensation plans is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 12, 2026.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information about certain relationships and related transactions, if any, and the independence of the Company’s directors is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 12, 2026.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information about fees paid to and services provided by our independent registered public accounting firm is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 12, 2026.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits
ExhibitNumber Description
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ExhibitNumber Description
21 Schedule of Subsidiaries
23 Consent of Deloitte & Touche LLP for the Company
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
* Represents management contract or compensatory plan.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Highwoods Properties, Inc.
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 54
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2025 and 2024 57
Highwoods Realty Limited Partnership:
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 64
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2025 and 2024 67
Notes to Consolidated Financial Statements 73
Schedule III 105
__________
All other schedules are omitted because they are not applicable or because the required information is included in our Consolidated Financial Statements or notes thereto.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Highwoods Properties, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Highwoods Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 10, 2026, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate Assets – Determination of Impairment Indicators and Impairment —Refer to Note 1 and Note 3 to the financial statements
Critical Audit Matter Description
The Company performs an impairment analysis of properties which begins with an evaluation of events or changes in circumstances that may indicate that the carrying value may not be recoverable, such as a significant decline in occupancy, identification of materially adverse legal or environmental factors, a change in the designation of an asset from core to non-core, which may impact the anticipated holding period, or a decline in market value to an amount less than carrying value. When events or changes in circumstances indicate that the carrying value may not be recoverable, the Company evaluates its real estate assets for impairment by comparing undiscounted future cash flows expected to be generated over the estimated hold period of each asset to the respective carrying amount. If the carrying amount of an asset exceeds the undiscounted future cash flows, an analysis is performed to determine the fair value of the asset.
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The Company makes judgments to determine whether specific real estate assets possess indicators of impairment. Changes in those judgments could have a material impact on the real estate assets that are identified for further analysis. For those real estate assets where impairment has been identified, the Company makes significant estimates and assumptions to determine the fair value using discounted future cash flows expected to be generated over the life of the asset.
Given (1) the Company’s evaluation of possible indications of impairment of real estate assets requires management to make judgments, (2) the undiscounted estimated future operating and residual cash flows to determine recoverability require management to make significant estimates and assumptions related to current and projected trends in rental, occupancy, capitalization rates and estimated hold periods, and (3), the determination of fair value also requires management to make significant estimates and assumptions related to the current and projected trends in discount rates, performing audit procedures to evaluate (a) whether management appropriately identified events or changes in circumstances indicating that the carrying amounts of real estate assets may not be recoverable, (b) the reasonableness of managements undiscounted future cash flow analysis, and (c) the reasonableness of managements discounted future cash flow analysis, required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of real estate assets for possible indications of impairment and our procedures related to the undiscounted estimated future operating and residual cash flows to determine recoverability and discount rate used in determining fair value, included the following, among others:
•We tested the effectiveness of controls over management’s identification of possible circumstances that may indicate that the carrying amounts of real estate assets are no longer recoverable, including controls over management’s designation of an asset as core or non-core, occupancy and management’s controls over undiscounted estimated future operating and residual cash flows to determine recoverability.
•We tested the effectiveness of controls over management’s determination the discount rate used in the estimation of fair value utilized to record impairment charges.
•We evaluated management’s identification of impairment indicators by developing an independent determination if properties exhibit an indicator of impairment by:
–Inquiring of management and reading investment committee and board minutes to identify properties that should be evaluated as non-core and therefore may impact the anticipated holding period.
–Testing real estate assets for possible indications of impairment, including searching for adverse asset-specific circumstances and/or market conditions by reviewing questionnaires to regional property managers and using reputable market surveys.
–Developing an independent expectation of impairment indicators and comparing such expectation to management’s analysis.
•We evaluated the Company’s determination of the undiscounted estimated future operating and residual cash flows to determine recoverability for those assets where an indicator had been identified by performing the following:
–Comparing the projections included in management’s cash flow estimates to determine recoverability to the Company’s historical results and external market sources.
–Evaluating the reasonableness of the significant assumptions used in the undiscounted estimated future operating and residual cash flows, including the estimated hold period, rental rates, growth rates, and capitalization rate assumptions.
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•We evaluated the Company’s determination of fair value for those assets where impairment had been identified by performing the following:
–With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and the market prices for comparable properties, and we developed a range of independent estimates of fair value and compared our estimates to those used by management.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
February 10, 2026
We have served as the Company’s auditor since 2006.
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HIGHWOODS PROPERTIES, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
Assets:
Real estate assets, at cost:
Development in-process 6,248 —
Real estate and other assets, net, held for sale 23,201 55,409
Investments in and advances to unconsolidated affiliates 471,580 485,726
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:
Accounts payable, accrued expenses and other liabilities 284,006 304,551
Commitments and contingencies
Noncontrolling interests in the Operating Partnership 52,777 65,791
Equity:
Preferred Stock, $0.01 par value, 50,000,000 authorized shares;
Common Stock, $0.01 par value, 200,000,000 authorized shares;
Accumulated other comprehensive loss (2,494) (2,246)
Noncontrolling interests in consolidated affiliates 3,897 4,291
See accompanying notes to consolidated financial statements.
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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Income
(in thousands, except per share amounts)
Year Ended December 31,
Operating expenses:
Impairments of real estate assets 8,800 24,600 —
Gain on deconsolidation of affiliate — — 11,778
Loss on disposition of investment in unconsolidated affiliate (4,700) — —
Equity in earnings of unconsolidated affiliates 2,369 4,158 1,107
Earnings per Common Share – basic:
Net income available for common stockholders $ 1.45 $ 0.94 $ 1.39
Earnings per Common Share – diluted:
Net income available for common stockholders $ 1.45 $ 0.94 $ 1.39
See accompanying notes to consolidated financial statements.
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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Comprehensive Income
(in thousands)
Year Ended December 31,
Comprehensive income:
Other comprehensive income/(loss):
Settlement of cash flow hedges — — (493)
Amortization of cash flow hedges (248) (249) (293)
Total other comprehensive loss (248) (249) (786)
See accompanying notes to consolidated financial statements.
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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity
(in thousands, except share amounts)
Conversions of Common Units to Common Stock 193,907 — — 4,795 — — — 4,795
Dividends on Preferred Stock ($86.25 per share) — — — — — (2,485) (2,485)
Issuances of restricted stock 282,453 — — — — — — —
Redemptions/repurchases of Preferred Stock — (10) — — — — (10)
Deconsolidation of affiliate — — — — (17,281) — (17,281)
Comprehensive income:
Other comprehensive loss — — — (786) — — (786)
Total comprehensive income 150,544
Conversions of Common Units to Common Stock 5,385 — — 132 — — — 132
Dividends on Preferred Stock ($86.25 per share) — — — — — (2,485) (2,485)
Issuances of restricted stock 324,532 — — — — — — —
Share-based compensation expense, net of forfeitures — 3 — 7,997 — — — 8,000
Comprehensive income:
Other comprehensive loss — — — (249) — — (249)
Total comprehensive income 104,005
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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity - Continued
(in thousands, except share amounts)
Conversions of Common Units to Common Stock 107,044 — — 3,329 — — — 3,329
Dividends on Preferred Stock ($86.25 per share) — — — — — (2,359) (2,359)
Issuances of restricted stock 261,680 — — — — — — —
Redemptions/repurchases of Preferred Stock — (2,120) — — — — (2,120)
Share-based compensation expense, net of forfeitures — 3 — 8,206 — — — 8,209
Comprehensive income:
Other comprehensive loss — — — (248) — — (248)
Total comprehensive income 162,402
See accompanying notes to consolidated financial statements.
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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
Operating activities:
Net credit losses/(reversals) on operating lease receivables (118) 2,289 3,834
Accrued interest on mortgages and notes receivable (1,280) (548) (805)
Amortization of cash flow hedges (248) (249) (293)
Amortization of mortgages and notes payable fair value adjustments 142 112 (288)
Impairments of real estate assets 8,800 24,600 —
Loss on disposition of investment in unconsolidated affiliate 4,700 — —
Gain on deconsolidation of affiliate — — (11,778)
Equity in earnings of unconsolidated affiliates (2,369) (4,158) (1,107)
Distributions of earnings from unconsolidated affiliates 6,699 5,973 1,246
Settlement of cash flow hedges — — (493)
Changes in operating assets and liabilities:
Accounts payable, accrued expenses and other liabilities (13,978) 14,037 3,871
Investing activities:
Distributions of capital from unconsolidated affiliates 8,104 8,484 6,594
Investments in mortgages and notes receivable (9,077) (6,229) (14,463)
Repayments of mortgages and notes receivable 7,835 63 9,888
Repayments of preferred equity from unconsolidated affiliates — — 80,000
Changes in other investing activities (2,125) (2,513) (7,431)
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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows – Continued
(in thousands)
Year Ended December 31,
Financing activities:
Redemptions/repurchases of Preferred Stock (2,120) — (10)
Redemptions of Common Units (10) — (163)
Costs paid for the issuance of Common Stock (1,430) (843) (226)
Repurchase of shares related to tax withholdings (2,009) (1,438) (1,325)
Contributions from noncontrolling interests in consolidated affiliates — — 320
Net increase in cash and cash equivalents and restricted cash 9,372 2,108 11,850
Cash from deconsolidation of affiliate — — (6,386)
Reconciliation of cash and cash equivalents and restricted cash:
Year Ended December 31,
Supplemental disclosure of cash flow information:
Year Ended December 31,
Supplemental disclosure of non-cash investing and financing activities:
Year Ended December 31,
Conversions of Common Units to Common Stock 3,329 132 4,795
Write-off of fully amortized debt issuance costs 1,388 4,083 1,356
Derecognition of lease liabilities related to right of use assets — (4,027) —
__________
(1)Accrued capital expenditures included in accounts payable, accrued expenses and other liabilities as of December 31, 2025, 2024 and 2023 were $45.0 million, $52.9 million and $55.7 million, respectively.
See accompanying notes to consolidated financial statements.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of the General Partner of Highwoods Realty Limited Partnership:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Highwoods Realty Limited Partnership and subsidiaries (the “Operating Partnership”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Operating Partnership as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on the Operating Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Operating Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate Assets – Determination of Impairment Indicators and Impairment —Refer to Note 1 and Note 3 to the financial statements
Critical Audit Matter Description
The Operating Partnership performs an impairment analysis of properties which begins with an evaluation of events or changes in circumstances that may indicate that the carrying value may not be recoverable, such as a significant decline in occupancy, identification of materially adverse legal or environmental factors, a change in the designation of an asset from core to non-core, which may impact the anticipated holding period, or a decline in market value to an amount less than carrying value. When events or changes in circumstances indicate that the carrying value may not be recoverable, the Operating Partnership evaluates its real estate assets for impairment by comparing undiscounted future cash flows expected to be generated over the estimated hold period of each asset to the respective carrying amount. If the carrying amount of an asset exceeds the undiscounted future cash flows, an analysis is performed to determine the fair value of the asset.
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The Operating Partnership makes judgments to determine whether specific real estate assets possess indicators of impairment. Changes in those judgments could have a material impact on the real estate assets that are identified for further analysis. For those real estate assets where impairment has been identified, the Operating Partnership makes significant estimates and assumptions to determine the fair value using discounted future cash flows expected to be generated over the life of the asset.
Given (1) the Operating Partnership’s evaluation of possible indications of impairment of real estate assets requires management to make judgments, (2) the undiscounted estimated future operating and residual cash flows to determine recoverability require management to make significant estimates and assumptions related to current and projected trends in rental rates, occupancy, capitalization rates and estimated hold periods, and (3) the determination of fair value also requires management to make significant estimates and assumptions related to the current and projected trends in discount rates, performing audit procedures to evaluate (a) whether management appropriately identified events or changes in circumstances indicating that the carrying amounts of real estate assets may not be recoverable, (b) the reasonableness of managements undiscounted future cash flow analysis, and (c) the reasonableness of managements discounted future cash flow analysis, required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of real estate assets for possible indications of impairment and our procedures related to the undiscounted estimated future operating and residual cash flows to determine recoverability and discount rate used in determining fair value, included the following, among others:
•We tested the effectiveness of controls over management’s identification of possible circumstances that may indicate that the carrying amounts of real estate assets are no longer recoverable, including controls over management’s designation of an asset as core or non-core, occupancy and management’s controls over undiscounted estimated future operating and residual cash flows to determine recoverability.
•We tested the effectiveness of controls over management’s determination of the discount rate used in the estimation of fair value utilized to record impairment charges.
•We evaluated management’s identification of impairment indicators by developing an independent determination if properties exhibit an indicator of impairment by:
–Inquiring of management and reading investment committee and board minutes to identify properties that should be evaluated as non-core and therefore may impact the anticipated holding period.
–Testing real estate assets for possible indications of impairment, including searching for adverse asset-specific circumstances and/or market conditions by reviewing questionnaires to regional property managers and using reputable market surveys.
–Developing an independent expectation of impairment indicators and comparing such expectation to management’s analysis.
•We evaluated the Operating Partnership’s determination of the undiscounted estimated future operating and residual cash flows to determine recoverability for those assets where an indicator had been identified by performing the following:
–Comparing the projections included in management’s cash flow estimates to determine recoverability to the Operating Partnership’s historical results and external market sources.
–Evaluating the reasonableness of the significant assumptions used in the undiscounted estimated future operating and residual cash flows, including the estimated hold period, rental rates, growth rates, and capitalization rate assumptions.
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•We evaluated the Operating Partnership’s determination of fair value for those assets where impairment had been identified by performing the following:
–With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and the market prices for comparable properties, and we developed a range of independent estimates of fair value and compared our estimates to those used by management.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
February 10, 2026
We have served as the Operating Partnership’s auditor since 2006.
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HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except unit and per unit data)
December 31,
Assets:
Real estate assets, at cost:
Development in-process 6,248 —
Real estate and other assets, net, held for sale 23,201 55,409
Investments in and advances to unconsolidated affiliates 471,580 485,726
Liabilities, Redeemable Operating Partnership Units and Capital:
Accounts payable, accrued expenses and other liabilities 284,006 304,551
Commitments and contingencies
Redeemable Operating Partnership Units:
Total Redeemable Operating Partnership Units 79,468 94,602
Capital:
Common Units:
Accumulated other comprehensive loss (2,494) (2,246)
Noncontrolling interests in consolidated affiliates 3,897 4,291
See accompanying notes to consolidated financial statements.
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HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
(in thousands, except per unit amounts)
Year Ended December 31,
Operating expenses:
Impairments of real estate assets 8,800 24,600 —
Gain on deconsolidation of affiliate — — 11,778
Loss on disposition of investment in unconsolidated affiliate (4,700) — —
Equity in earnings of unconsolidated affiliates 2,369 4,158 1,107
Earnings per Common Unit – basic:
Net income available for common unitholders $ 1.46 $ 0.94 $ 1.39
Earnings per Common Unit – diluted:
Net income available for common unitholders $ 1.46 $ 0.94 $ 1.39
See accompanying notes to consolidated financial statements.