Highwood Properties, Inc.’s HIW efforts to improve portfolio quality by focusing on assets in best business districts (BBD) bode well. Also, the company has a diversified tenant base. However, lower lease pricing ability and less occupancy levels amid high competition might dent its profitability.
Notably, Highwoods has been witnessing healthy employment trends in the Southeastern markets, with annual employment growth rate surpassing the national average in many regions. This looks encouraging, because with revival of the economy, growth in business and gains in employment, corporate sectors seek expansion, renting more space to accommodate the increased workforce. As such, demand for Highwoods’ premium office spaces is anticipated to remain healthy.
Further, the company has been expanding its footprint in high growth markets through asset acquisitions, dispositions and developments. To fund these transactions, the company is utilizing sale proceeds from non-core asset dispositions. In fact, in second-quarter 2018, the company sold a building and various land parcels for $34 million. With such strategic efforts, a large part of the company’s portfolio is now concentrated in the high-growth Sun Belt markets.
Also, the company has a decent balance sheet and is trying to boost its liquidity position further. In fact, in first-quarter 2018, Highwoods issued 10-year notes worth $350 million, at an effective interest rate of 4.06%. In addition, in the recently-reported quarter, the company paid off unsecured notes worth $200 million, having an interest rate of 7.50%. Highwoods has no significant debt maturities until 2020.
The company’s shares have gained 15.4% in the past six months compared with 13% growth recorded by the industry.
The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Last month, the company reported second-quarter 2018 funds from operations (FFO) of 87 cents per share, marginally beating the Zacks Consensus Estimate. However, the total revenue figure missed estimates. Results reflected growth in average in-place office cash rent per square foot and decline in same-property occupancy.
Notably, persistent space efficiency trends and rising supply are likely to restrict the company’s ability to attract and retain tenants at relatively higher rents than its competitors. Moreover, in the first half of 2018, same-property occupancy witnessed a contraction of 90 basis points year over year, to 91.8%. For the balance of the year, management expects same-store cash NOI to moderate on account of lower occupancy in the third quarter.
Additionally, per management, the acquisition market remains unfavorable with low availability of high-quality assets that can be purchased. This, along with an extremely competitive market, has resulted in steep pricing of high-quality assets. Also, rate hikes expose the company to elevated financing costs and may affect its results.
Stocks to Consider
A few better-ranked stocks from the Real Estate Investment Trust (REIT) space include Americold Realty Trust COLD, Corrections Corp. of America CXW and City Office REIT, Inc. CIO. While Americold Realty and Corrections Corp. of America flaunt a Zacks Rank of 1, City Office REIT carries a Zacks Rank of 2 (Buy), at present.
Americold Realty’s Zacks Consensus Estimate for 2018 FFO per share has been revised 2.7% upward over the past 30 days. Its shares have rallied 36.1% in the past six months.
Corrections Corp. of America’s FFO per share estimates for 2018 inched up 1.8% over the past 30 days. Its shares have appreciated 20.6% over the past six months.
City Office REIT’s FFO per share estimates for the current year moved 1.8% north in the past 30 days. Its shares have gained 23.5% in six months’ time.
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