Highwoods Properties Inc. (HIW) declared the acquisition of its joint venture (JV) partner’s interests in 2 Atlanta-based Class Aoffice properties. Concurrently, the company revealed the divestiture of its Tampa-based non-core office asset. These moves are part of the company’s ongoing portfolio enhancement activity.
Acquisition Details
In particular, Highwoods bought its JV partner’s 57% interest in 10-story office buildings – Glenlake North and Glenlake South – positioned in Atlanta's Central Perimeter submarket. The 82% leased properties, spanning 505,000 square feet, were acquired for $45.4 million.
With the valuation at $80.6 million, including planned near-term building improvements worth $1.0 million, the assets have a value per square foot of $159, signifying a 30+% discount to the estimated replacement cost. Moreover, the total incremental investment is projected to be around $46.0 million. Management expects the acquired properties to generate full-year cash and GAAP net operating income of $5.1 million and $6.0 million, respectively.
The assumed secured debt portion for the property is projected to be around $37.6 million. The company funded the remaining equity portion, worth $24.0 million, of the purchase price with proceeds generated from its recent equity offering of shares, non-core divestitures and borrowings under its revolving credit facility. Notably, management projects about $0.2 million of acquisition costs to be expensed in the third quarter of 2013.
Divestiture Details
Highwoods divested a 2-story non-core office building – Anchor Plaza – in Tampa. The 56% leased asset, spanning 98,000 square feet, was sold for $11.6 million and generated a non-FFO gain of $1.2 million.
Conclusion
We expect Highwoods’ portfolio repositioning activity to boost the company’s occupancy growth and strengthen its position in one of the best office markets of the U.S. Year-to-date, Highwoods has vended non-core assets worth $80 million and acquired high-quality properties worth $396 million. Moreover, the company has another $129 million in its in-process development pipeline (93% pre-leased).
Highwoods currently carries a Zacks Rank #2 (Buy). Other better performing REITs include Winthrop Realty Trust (FUR), SL Green Realty Corp (SLG) and EastGroup Properties (EGP). While Winthrop carries a Zacks Rank #1 (Strong Buy), SL Green and EastGroup both have a Zacks Rank #2.
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