Back to top

Analyst Blog

In order to boost its presence in vibrant Westshore submarket of Tampa, Highwoods Properties Inc. (HIW - Analyst Report) announced the acquisition of Colonial Place I and II for $56 million. This Raleigh-based real estate investment trust (REIT) noted that the purchase price, which includes $3.5 million worth of proposed renovation, equates to $151 per square feet or 30% below the replacement cost.

Positioned at the core of Westshore submarket of Tampa, Colonial Place I and II are two 10-story properties spanning 372,000 square feet with structured parking. Highwoods funded the deal with proceeds from its at-the-market (ATM) program, divesture of non-core assets and borrowings under the revolving credit facility. Moreover, the company projects the 86.8% leased properties to generate full-year cash and GAAP net operating income (NOI) of $4.6 million and $4.9 million, respectively.

The Colonial I & II acquisition is strategic fit for Highwoods as it will likely boost its occupancy level in the upscale submarket of Tampa. We expect this transaction to boost the top-line growth and strengthen its foothold in the market. Including these properties, Highwoods owns 16 office buildings in the Westshore submarket. The properties, spanning 2.4 million square feet, are around 88.4% occupied.

Colonial I & II are located adjacent to another Highwoods’ Class A office property – 4200 Cypress. The company acquired the 94% occupied, 220,000 square feet building in 2009. Also, Highwoods stated its intention to rebrand these assets as Meridian One, Two and Three.
Management remains upbeat regarding the acquisition of Colonial I & II. Further, it expects the strategic placement of these three properties to benefit the company and prove immediately accretive to its FFO (funds from operations).

In Early February, Highwoods reported its fourth quarter 2012 results with core FFO of 68 cents per share, in line with the Zacks Consensus Estimate. However, it lagged the prior-year quarter figure by a couple of cents. Though the company benefited from decent leasing and portfolio restructuring activity, a pressure on rent acted as a headwind.

Highwoods currently holds a Zacks Rank #3 (Hold). Other REITs that are performing better include Omega Healthcare Investors, Inc. (OHI - Snapshot Report) carrying a Zacks Rank #1 (Strong Buy) and Ventas, Inc. (VTR - Analyst Report) and Cousins Properties Inc. (CUZ - Analyst Report) with 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.

Please login to Zacks.com or register to post a comment.