Recently, Highwoods Properties Inc. (HIW) bought a Class A office property – One Alliance Center – in Buckhead submarket of Atlanta. Notably, this is the sister building of Two Alliance Center, which the company acquired in Sep 2012.
A Premium Property
One Alliance Center is located in close proximity to two upscale malls titled Phipps Plaza and Lenox Square Mall, and luxury hotels such as Ritz-Carlton of Marriott International, Inc. (MAR) and Mandarin Oriental.
Moreover, the building is easily accessible by various modes of public transport – one of the prerequisites of an office property that is likely to employ a sizeable number of workers. Besides its strategic location, the property offers a host of amenities including a fitness center, conference facilities and a full-service bistro.
Currently 67% leased, One Alliance Center is expected to generate first year cash net operating income (NOI) of $6.2 million (before $1.1 million of free rent) and GAAP NOI of $7.0 million from existing tenants, according to the company.
The Financing
Highwoods’ total investment in One Alliance Center is projected to be $143.4 million ($259 per square foot). It includes the purchase price plus investment worth $2.9 million in planned near-term building improvements as well $0.4 million in tenant improvements committed under existing leases. In total, Highwoods invested about $278 per square foot (including planned building improvements) in One and Two Alliance Center, a 15% discount to the estimated replacement cost.
Highwoods funded the transaction from the proceeds of its at-the-market (ATM) stock offering programs, borrowings under its revolving credit facility, non-core divestiture and available cash. Since Highwoods’ earnings conference call on May 1, 2013, the company has reportedly sold nearly 1.7 million shares under its ATM programs, raising net proceeds of $63.0 million.
Our Take
With this above-mentioned property, Highwoods now owns around 1,045,000 contiguous square feet of Class A office space, at the center of Buckhead submarket of Atlanta. Moreover, the company expects occupancy at One Alliance Center to exceed 93% in the coming three years, provided the planned refurbishment of the property is accomplished.
Hence, we remain upbeat with this acquisition in one of the most active office markets of Atlanta. Notably, a large part of the company’s portfolio is now concentrated in the high-growth Sun Belt markets, which provide above-average job growth owing to its long-term demographic trends.
Highwoods currently carries a Zacks Rank #3 (Hold). Better performing REITs that deserve a look include CommonWealth REIT (CWH) and Sunstone Hotel Investors Inc. (SHO), both of which carry a Zacks Rank #1 (Strong Buy).
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