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Analyst Blog

Highwoods Properties Inc. (HIW - Analyst Report) announced the divestiture of several non-core assets worth $88.8 million and an agreement to fully lease the 4301 Research Commons laboratory/office building. Taking into consideration these announcements, this real estate investment trust (REIT) declared an increase in its funds from operations (FFO) per share guidance range for full-year 2013.

Non-core Assets Divestiture

In particular, Highwoods offloaded Greenville-based 8 multi-tenant office properties for $58.2 million. These 78% occupied assets are anticipated to garner $3.9 million and $4.5 million, respectively in cash and GAAP net operating income (NOI) for full-year 2013.

Additionally, Highwoods sold a Pinellas County, Fla.-based office building for $11.5 million. This 98% occupied property is expected to contribute $0.9 million in 2013 cash and GAAP NOI. Furthermore, the company disposed a multi-family development project – Lofts at Weston – in Raleigh. The asset, which was developed in a joint venture with Ravin Partners, was sold for gross proceeds worth $38.3 million. 

With these dispositions, as of Dec 20, Highwoods sold $286 million of non-core assets, bought Class A office properties worth $549 million, raised $295 million of equity and disclosed development projects of $206 million.

Lease Deal

Apart from this divestitures, Highwoods inked a lease deal with a core agency of the State of North Carolina at Research Commons for 96,000 square feet of space. This included the full let out of the 4301 Research Commons property.

Guidance Increase

Reflecting the benefits from the aforementioned transactions, Highwoods upped its 2013 FFO per share guidance to $2.82 – $2.84 per share from $2.79 – $2.81 projected earlier.

Our take

We are encouraged by Highwoods’ efforts to improve its portfolio base and pave the way for bottom-line growth. Notably, the company has been focusing on shifting its portfolio mix in high growth markets and this Greenville-based divestiture of 8 out of total 9 assets is in line with the company’s strategy. As a matter of fact, Highwoods expects to offload the remaining one property by early 2014.

Also, the full re-leasing of 4301 Research Commons property is noteworthy and reflects the company’s efforts to fill up its vacant properties. Moreover, the guidance increase boosts investors’ confidence in the stock.

At present, Highwoods has a Zacks Rank #3 (Hold). Some better-ranked stocks in the REIT-Equity trust – Othersector include SL Green Realty Corp. (SLG - Analyst Report), EastGroup Properties Inc. (EGP - Snapshot Report) and First Industrial Realty Trust Inc. (FR - Snapshot Report). All stocks carry a Zacks Rank #2 (Buy).

Note: Funds from operations, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.

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