We maintain our Neutral rating on Highwoods Properties, Inc. (HIW), a real estate investment trust (REIT), as we anticipate it to perform in line with the broader market.
Based in Raleigh, North Carolina, Highwoods owns and operates its properties through its wholly-owned subsidiary Highwoods Realty Limited Partnerships. Highwoods owns or has management interests in office, industrial, retail, and service center properties, including development projects and apartment units across the U.S. It also provides customer-related and fee-based real estate management services for its properties and for third-party clients.
Highwoods is one of the largest owners and operators of suburban office, industrial and retail properties in the Southeastern and Midwestern U.S., providing a complete line of real estate services to its customers and third parties through a fully-integrated organization. The core markets of the company include Florida, Georgia, Iowa, Maryland, Missouri, Mississippi, North Carolina, South Carolina, Tennessee and Virginia. This provides a significant upside potential for the company.
Presently, Highwoods is in the process of repositioning its portfolio to focus on stronger long-term markets and newer assets. A large part of the company’s portfolio is now concentrated in high-growth Sun Belt markets, which due to its long-term demographic trends, should exhibit above-average job growth. Consequently, Highwoods is relatively better equipped to outperform competitive pressure.
However, despite the continued portfolio repositioning efforts, Highwoods still has a large asset base in low barriers to entry Southeastern markets, such as, Atlanta, Piedmont Triad, Nashville and Kansas City, which historically have not been strong long-term office markets. This undermines the long-term growth potential of the company.
In addition, Highwoods generate a significant amount of revenue from its office portfolio. Office demand is highly correlated to job growth. If job losses continue in future, operations in the company’s office portfolio is likely to suffer, thereby affecting the top-line of the company.
Highwoods currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Duke Realty Corp. (DRE), one of the competitors of Highwoods.
DUKE REALTY CP (DRE): Free Stock Analysis Report
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