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Highwoods (HIW) Beats Q2 FFO Estimates, Raises 2022 Outlook

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Highwoods Properties Inc.’s (HIW - Free Report) second-quarter 2022 funds from operations (FFO) per share of $1.00 surpassed the Zacks Consensus Estimate of 98 cents.

Rental and other revenues of $203.8 million were in line with the Zacks Consensus Estimate.

On a year-over-year basis, the FFO per share increased 7.5%, while rental and other revenues climbed nearly 10%.

Healthy leasing activity and improvement in same-property cash net operating income (NOI) growth aided HIW’s results.

According to Ted Klinck, president and CEO, “We had another productive and active quarter. The consistency of our performance while simultaneously improving our long-term outlook and further fortifying our balance sheet demonstrates the resiliency of our portfolio, platform and strategy.”

Quarter in Detail

Highwoods leased 682,000 square feet of second-generation office space in the second quarter, including 243,000 square feet of new leases. Moreover, the present development pipeline, which covers around 1.7 million square feet, aggregates $559 million (at HIW share). It is 32.7% pre-leased on a dollar-weighted basis.

Operating expenses were $176.7 million, up 37.7% on a year-over-year basis.

The average in-place cash rent was up 6.4% per square foot from the prior-year quarter, while the dollar-weighted average term was 5.5 years.

At the end of the reported quarter, in-service portfolio occupancy decreased from 91.1% as of Mar 31, 2022, to 90.6% on Jun 30, 2022. However, on a year-over-year basis, it increased from 89.5%.

Excluding the net impact of temporary rent deferral repayments, the same-property cash NOI increased 1.1% year over year to $116.6 million.

Portfolio Activity

During the second quarter, Highwoods acquired a mixed-use development parcel for $27 million in Charlotte’s South End BBD. The parcel can support at least 300,000 square feet of office and 250 residential units.

It also announced the planned acquisition of 650 South Tryon for $203 million in Charlotte. The acquisition is expected to be completed in the third quarter of 2022.

HIW disposed of $90.6 million of non-core office properties. This comprised $70.4 million from the sale of the 138,000 square feet of FBI Field Office building in Tampa and $20.3 million from the sale of Airpark East, which represents the company’s last remaining buildings in Greensboro.  It also sold off $10.1 million of non-core land during the quarter.

Subsequent to the quarter end, Highwoods formed a 50/50 joint venture with Granite Properties to develop Granite Park Six in the Frisco/Plano BBD with an anticipated total investment of $200 million (at 100%) and 23Springs in the core of Uptown BBD with an expected total investment of $460 million (at 100%). This marked the company’s entry into the Dallas market. Further, HIW intends to fund these developments by disposing of assets in Pittsburgh over the next few years.

Liquidity

Highwoods exited second-quarter 2022 with $25.1 million of cash and cash equivalents, up from $18.7 million reported as of Mar 31, 2022. The reported net debt-to-adjusted EBITDAre ratio was 5.2 compared with 5.3 at the end of Mar 31, 2022.

The company holds sufficient liquidity of $660 million from the available $750 million revolving credit facility.

During the reported quarter, HIW extended the maturity of its $200 million unsecured bank term loan from November 2022 to May 2026. It also lowered the borrowing rate by roughly 15 basis points.

Raised 2022 Guidance

Highwoods Properties raised its 2022 FFO outlook.

It now predicts FFO per share to lie in the range of $3.92-$4.00, up from the prior estimation of $3.82 to $3.98. The Zacks Consensus Estimate for the same is pegged at $3.94.

The same-property cash NOI, excluding termination fees and the net impact of temporary rent deferrals for the current year remained unchanged at 0.5-2%, while the year-end occupancy band was tweaked to 91-92%. Planned building dispositions are expected to be in the band of $110-$200 million.

Highwoods currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Highwoods Properties, Inc. Price, Consensus and EPS Surprise Highwoods Properties, Inc. Price, Consensus and EPS Surprise

Highwoods Properties, Inc. price-consensus-eps-surprise-chart | Highwoods Properties, Inc. Quote

Performance of Other REITs
 

SL Green Realty (SLG - Free Report) reported second-quarter 2022 FFO per share of $1.87, beating the Zacks Consensus Estimate of $1.69. The reported FFO per share compared favorably with the year-ago quarter’s $1.60.

SLG's first-quarter performance was driven by year-over-year growth in the bottom line and healthy leasing activity.

Crown Castle International Corp.’s (CCI - Free Report) second-quarter 2022 adjusted funds from operations (AFFO) per share were $1.80. The Zacks Consensus Estimate for the same was pegged at $1.79. Net revenues of $1.73 billion exceeded the Zacks Consensus Estimate of $1.71 billion.

Growth in site-rental revenues due to elevated tower space demand aided the top-line performance. CCI also raised the outlook for adjusted EBITDA for 2022.

Alexandria Real Estate Equities, Inc. (ARE - Free Report) reported second-quarter 2022 adjusted FFO per share of $2.10, surpassing the Zacks Consensus Estimate of $2.06. The reported FFO per share also compared favorably with the year-ago quarter’s $1.93.

Alexandria witnessed continued healthy leasing activity and rental rate growth during the quarter.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.