HIGHWOODS PROPERTIES, INC. (HIW) stock intrinsic value fair value estimate & owner earnings analysis

Highwoods Properties owns and operates office buildings concentrated in Sunbelt markets - Raleigh, Nashville, Atlanta, Charlotte, Tampa, Orlando and Richmond - totaling roughly 26.8 million rentable square feet. It leases space to a diversified customer base; its largest tenant, Bank of America, represents only about 4% of annualized rent, and lease expirations are spread fairly evenly over the next several years rather than concentrated in any one year. The office sector has gone through a genuine, multi-year shift as hybrid and remote work reduce how much space companies need per employee, and Highwoods' own numbers show it clearly: portfolio occupancy has declined every year since 2022, from 90.8% to 85.3% at the end of 2025, and same-property cash net operating income fell again in 2025. Rents on occupied space have kept climbing (roughly 3% a year), but not by enough to offset the shrinking occupied footprint, and the cost of re-leasing space - tenant improvements and leasing commissions paid to sign new tenants - has risen as landlords compete harder to fill vacancies. We measure the cash a shareholder could actually take out of this business: cash from operations, after subtracting stock-based compensation and the swings in receivables/payables/straight-line rent that are just timing, and after subtracting the capital spending required to keep the existing buildings leased - tenant improvements, leasing commissions, and routine building improvements. We treat all of that leasing-related spending as a cost of standing still, not of growing, because a REIT re-leasing existing space is maintaining its business, not expanding it; new acquisitions and ground-up development are treated separately as optional growth spending. On that basis, per-share owner earnings fell from about $2.17 in 2022 to $1.58 in 2025, tracking the occupancy decline closely. We anchor our valuation on the median of 2022-2025 (about $1.99 per share) rather than including years before 2020, because the demand environment for office space before the shift to hybrid work is not representative of the business today. We also exclude 2021, when leasing activity and related spending were unusually depressed industry-wide, which would otherwise flatter that year's figure. Because the decline within our 2022-2025 window has been continuous rather than a one-off, our forecast assumes earnings keep drifting modestly lower for another year or two before leveling off, rather than snapping back to the average immediately. Highwoods does not publish forward occupancy or releasing-spread guidance, so this near-term path is our own extrapolation of the trend visible in the filings, not company guidance. Because office buildings are physical assets with long useful lives - unlike a patent or a contract with a hard expiration date - we do not assume the business simply runs out after ten years. As long as Highwoods keeps spending on tenant improvements and building upkeep (which our figure already counts as a cost, not a source of value), a leased office portfolio can in principle keep renewing itself indefinitely. Whether it renews at anything close to today's economics is genuinely uncertain, which is why our three cases differ so much, and more than half of our base-case value comes from years beyond the ten-year forecast. Our base case assumes occupancy erosion continues for another year or two before leveling out in the mid-80% range, with rent increases on occupied space roughly offsetting further modest occupancy loss, settling into sustained owner earnings of a little under $2.00 per share held indefinitely. On that basis we estimate the shares are worth about $30.73 today. Our bear case assumes the shift away from office space has further to run: occupancy keeps falling toward the high 70s/low 80s as more leases roll over into a weaker leasing market, new leases get signed at flat-to-negative rates versus the leases they replace, and re-leasing costs stay elevated even as revenue shrinks. Some already-weaker parts of the portfolio (one grouping of smaller markets is already under 76% occupied) become harder to lease profitably, and we assume some buildings are eventually sold at a loss rather than continuing to be funded. The federal government, one of Highwoods' 20 largest customers, has a lease averaging only about 3.6 years remaining, and government office-space consolidation is a well-documented industry trend that could add further pressure. Meanwhile roughly $3.6 billion of debt has to be refinanced over time, and if office property values stay depressed, that refinancing becomes more expensive and squeezes what is left for shareholders. Under this case we estimate the shares are worth about $11.93 - a real, positive value, but a much smaller one, and highly sensitive to how the leverage plays out. Our bull case assumes Highwoods' bet on newer, well-located, amenitized buildings in growing Sunbelt cities pays off: as companies increasingly concentrate their office footprint into higher-quality buildings, occupancy stabilizes and gradually improves, return-to-office trends firm up in these specific markets, and landlords regain enough leverage that new leases get signed at positive rates versus the leases they replace. Under this case we estimate the shares are worth about $38.05. Given how wide that range is, and because the occupancy decline had not clearly bottomed as of the most recent annual report, the margin-of-safety price reflects a meaningful discount to fair value and assumes early evidence that occupancy and leasing economics are stabilizing - specifically, a couple of consecutive quarters where portfolio occupancy stops declining and new leases are signed at flat-to-positive rates versus the leases they replace. On price alone, and using a larger-than-usual margin of safety given the sector's unresolved uncertainty, the margin-of-safety price is around $17.53 per share.