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Highwoods (HIW) Disposes of Two Office Buildings for $40.2M

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Highwoods Properties, Inc. (HIW - Free Report) recently divested its interests in two office buildings — One Independence Park and Riverbirch — for $19.5 million and $20.7 million, respectively. The sell-off aligns with Highwoods’ disciplined capital-recycling strategy that entails disposing of non-core assets and redeploying the proceeds in premium asset acquisitions and accretive development projects.

Shares of HIW, however, lost 1.98% on Jun 1 normal trading session on the NYSE, reflecting concerns in the U.S. office real estate market.

One Independence Park encompasses 116,000 square feet and is located in Tampa’s Westshore BBD. The building is 100% occupied by a single user under a lease that Highwoods signed last year with the new user.

Riverbirch, situated in the Research Triangle Park submarket of Raleigh, spans 60,000 square feet and is 100% occupied by a single customer that recently renewed its long-term lease.

In totality, the two office properties were estimated to generate GAAP net operating income (NOI) of $2.6 million and cash NOI of $1.9 million, inclusive of $0.9 million of free rent, in 2023.

Highwoods utilized the resultant cash proceeds to lower its outstanding balance under its revolving credit facility and for general corporate purposes.

Per Ted Klinck, president and CEO of Highwoods, “These transactions highlight that high-quality buildings with healthy occupancy continue to generate solid interest from qualified buyers. Proceeds from these sales will further fortify our already healthy balance sheet, enhance our liquidity and position Highwoods to take advantage of future growth opportunities.”

In addition, Highwoods provided $9.8 million in non-recourse first mortgage seller financing in association with the disposition of One Independence Park. The annual interest rate on the note is 5.50%, with maturity in November 2023. The note can, however, be prepaid before the maturity date without any penalty.

Highwoods’ aggressive capital-recycling program highlights its prudent capital management practices and positions it well to capitalize on long-term growth opportunities while adding to its balance-sheet strength.

Over the years, it has disposed of non-core properties. It has redeployed the proceeds to expand its footprint in the high-growth best business districts (BBD) markets through accretive acquisitions and development activities.

Notably, from the beginning of 2019 through 2022, the company completed its exit from Greensboro and Memphis, and entered Charlotte and Dallas, two higher-growth markets with greater upside prospects. It intends to fund these developments by disposing of its non-core assets in Pittsburgh over the next few years.

On the development front, in December 2022, HIW announced the development of Midtown East in Tampa, in which it owns a 50% JV interest. The 143,000 square feet office property in Midtown Tampa has a total investment of $83 million, of which Highwoods’ share is $42 million.

As of the first quarter of 2023 end, Highwoods’ development pipeline aggregated $518 million (at company’s share), encompassing 1.6 million square feet.

Nonetheless, a choppy office market environment could soften the demand for Highwood’s properties, hurting leasing volume in the near term. Also, a high interest rate environment is worrisome.

Shares of this Zacks Rank #3 (Hold) company have lost 12.6% in the quarter-to-date period compared with the industry’s decline of 5.5%.

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Stocks to Consider

Some better-ranked stocks from the REIT sector are Rexford Industrial Realty (REXR - Free Report) , Stag Industrial (STAG - Free Report) and Innovative Industrial Properties (IIPR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Rexford Industrial’s current-year funds from operations (FFO) per share has moved 1.4% northward over the past two months to $2.19.

The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised marginally upward over the past month to $2.25.

The Zacks Consensus Estimate for Innovative Industrial Properties’ 2023 FFO per share has moved 3.6% upward in the past month to $8.66.

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.

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