Highwoods Beats, Narrows Outlook

Highwoods Properties Inc (HIW - Analyst Report) reported FFO (fund from operations) of $42.7 million or 56 cents per share in the third quarter of 2011 compared with $43.2 million or 57 cents per share in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Excluding one-time charges, reported FFO in the quarter stood at 65 cents per share compared with 58 cents per share in the year-earlier quarter. Recurring FFO was also surpassed the Zacks Consensus Estimate by 5 cents.

Total revenue during the quarter was $122.1 million compared with $115.5 million in the prior-year quarter. Total revenue was ahead of the Zacks Consensus Estimate of $118 million.

Average in-place cash rental rates during the quarter expanded 3.9% year over year across the entire portfolio. For the office portfolio, rent  spiked 1.4% (GAAP) but decreased 12.4% (cash) on a year-over-year basis, while for the industrial and retail portfolio rent decreased 2.3% (GAAP) and 8.8% (cash),  but increased 46.5% (GAAP) and 26.2% (cash), respectively.

Overall occupancy in the wholly-owned portfolio was 89.3% at the end of the reported quarter.

The company leased 1.7 million square feet of space, including 1.1 million square feet of office space in the third quarter 2011. During the third quarter, the company signed a 129,000 square foot lease with an existing customer, comprising a 97,000 square foot renewal and a 32,000 square foot expansion, at Metrowest and Cambridge, two non-core properties in Orlando.

Same-store NOI (net operating income), excluding straight line rent and lease termination fees, for the three months ended September 30, 2011, spiked 2.2% year over year.

During the quarter, Highwoods acquired two Class A office properties for a total consideration of $300 million. Of the two acquired properties, one is a 1.54 million square foot, six-building complex in Pittsburgh named PPG Place , and the other a 503,000 square foot property named Riverwood 100 in Atlanta.

Subsequent to the end of the third quarter 2011, Highwoods signed leases totaling 61,000 square feet at these properties. This includes a full floor lease at PPG Place totaling 23,000 square feet and two leases at Riverwood 100 totaling 38,000 square feet.

At quarter end, Highwoods had $11.1 million in cash and cash equivalents. For full-year 2011, Highwoods narrowed its FFO outlook for fiscal 2011 from $2.52 - $2.60 per share to $2.56 - $2.58 per share.

Highwoods currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Cousins Properties Inc. (CUZ - Analyst Report) holds a Zacks #2 Rank, which translates into a short-term Buy rating.

Read the full analyst report on CUZ

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