Highlands REIT Reports Portfolio Strategy

The company continues to navigate leasing complexities, asset sales, and economic headwinds while positioning itself for future liquidity opportunities.

March 14, 2025

Refining the Portfolio

Highlands REIT is working to sharpen its portfolio strategy while navigating ongoing market challenges. The company, which owns a mix of multi-family, retail, office, and special-use properties, is focused on maintaining occupancy, managing debt, and identifying opportunities to streamline its holdings.

As of December 31, 2024, Highlands’ portfolio was 72.4% leased, with an average annual base rent of $25.93 per square foot. While its multi-family assets continue to perform well, leasing activity in the retail and office segments remains uneven. Sherman Plaza, a key retail property, ended the year at 55.6% occupancy, reflecting broader challenges in the sector.

The company’s Hudson correctional facility remains vacant, with no immediate leasing or sale prospects. Given the specialized nature of the property, repositioning it remains an ongoing challenge.

Strategic Asset Sales and Debt Management

Highlands is actively reviewing its asset mix, looking for ways to improve long-term stability. The company has signaled a shift toward multi-family properties, which offer more reliable income compared to retail and special-use assets. This strategy includes:

• Selling underperforming properties where possible


• Reinvesting proceeds into stronger asset classes


• Maintaining capital efficiency

At the same time, the company is balancing debt obligations and financing constraints. With $123.9 million in mortgage debt spread across its holdings, managing interest costs and refinancing options remains a priority. Several loans are structured as interest-only , while others have prepayment penalties that limit flexibility. Market conditions will play a role in how Highlands adjusts its financing strategy in the coming year.

Shareholder Actions and Valuation Update

Highlands took steps to offer liquidity to investors in late 2023, completing a $25 million stock buyback through a modified Dutch Auction tender offer. The program repurchased 169.4 million shares at $0.14 per share, with additional corrections made in early 2024.

In December 2024, the company updated its estimated per-share value to $0.31, based on an independent assessment of its net asset value. This valuation reflects:

• Current market conditions


• Leasing risks and vacancy concerns


• Expected transaction costs tied to future liquidity events

While Highlands does not trade on a public exchange, it continues to evaluate potential future liquidity options. Additional share repurchase programs or other strategic actions could be considered depending on market conditions and asset sales.

Looking Ahead

The company faces a complex real estate environment, with rising interest rates, inflation pressures, and shifting tenant demand. Key risks include:

• Leasing uncertainty: Retail and office properties continue to face challenges in securing long-term tenants.


• Regulatory requirements: Compliance with environmental laws and tax regulations could impact operations.


• Financing constraints: Rising interest rates may limit favorable refinancing options.

Despite these challenges, Highlands remains focused on stabilizing its portfolio, reducing debt, and positioning itself for long-term value creation. Future moves will depend on market conditions, but the company’s strategy is centered on optimizing its real estate holdings while keeping a close eye on capital efficiency.