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Why You Should Retain Highwoods Properties (HIW) Stock for Now
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Highwoods Properties (HIW - Free Report) is well-poised to benefit from the growing demand for its premier office properties concentrated in high-growth Sun Belt markets, aggressive capital-recycling program and solid balance sheet position. However, intense competition from its peers and high interest rates are key concerns.
The company has a well-diversified tenant base that includes several bellwethers. Further, HIW benefits from a significant portion of its portfolio being focused on high-growth Sun Belt markets. These markets exhibit promising long-term demographic trends and are anticipated to maintain above-average job growth, which is expected to contribute to the sustained growth of rental income over the long term.
Highwoods is witnessing a recovery in demand for its high-quality, well-placed office properties as highlighted by a rebound in new leasing volume. The company leased around 522,000 square feet of second-generation office space in the first quarter, including 220,000 square feet of new leases.
The next cycle of office-space demand will likely be driven by an inbound business migration and significant investments announced by office occupiers to expand their footprint in the Sun Belt regions. This is expected to boost the demand for HIW’s high-quality portfolio of office assets in the forthcoming quarters.
Highwoods has been following a disciplined capital-recycling strategy that entails disposing of non-core assets and redeploying the proceeds in premium asset acquisitions and accretive development projects. The company has been making concerted efforts to improve its portfolio quality by expanding its footprint in the high-growth best business districts markets through acquisitions and development activities.
In May, Highwoods announced the sale of two office buildings, One Independence Park and Riverbirch, for $40.2 million. The move came as part of its efforts to shed non-core assets and fortify its balance sheet and enhance its liquidity position to take advantage of future growth opportunities.
On the balance sheet front, the company has adequate liquidity from the cash in hand, cash flows from operating activities and other financing sources to meet short-term liquidity needs. Also, in the first quarter of 2023, it generated 82.5% unencumbered net operating income, providing scope to tap additional secured debt capital if required.
The company has no consolidated debt maturities until the fourth quarter of 2025. With adequate financial flexibility, HIW is well-positioned to capitalize on growth opportunities.
However, Highwoods faces intense competition from developers, owners and operators of office properties, as well as other commercial real estate. This restricts its ability to attract and retain tenants at relatively higher rents than its competitors and hinders its leasing activity. It also impacts the company’s ability to acquire high-quality properties at favorable prices. Further, higher development activities across its markets will likely result in new supply in the upcoming periods.
A high interest rate is another concern for Highwoods. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. Our estimate for 2023 interest expenses indicates an increase of 27.7% year over year.
Shares of this Zacks Rank #3 (Hold) company have gained 2.3% in the past three months against the industry’s fall of 1.4%.
The Zacks Consensus Estimate for Ventas’ current-year funds from operation (FFO) per share has moved marginally northward over the last 60 days to $2.98.
The Zacks Consensus Estimate for Host Hotels’ current-year FFO per share has been revised marginally northward over the last 30 days to $1.91.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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Why You Should Retain Highwoods Properties (HIW) Stock for Now
Highwoods Properties (HIW - Free Report) is well-poised to benefit from the growing demand for its premier office properties concentrated in high-growth Sun Belt markets, aggressive capital-recycling program and solid balance sheet position. However, intense competition from its peers and high interest rates are key concerns.
The company has a well-diversified tenant base that includes several bellwethers. Further, HIW benefits from a significant portion of its portfolio being focused on high-growth Sun Belt markets. These markets exhibit promising long-term demographic trends and are anticipated to maintain above-average job growth, which is expected to contribute to the sustained growth of rental income over the long term.
Highwoods is witnessing a recovery in demand for its high-quality, well-placed office properties as highlighted by a rebound in new leasing volume. The company leased around 522,000 square feet of second-generation office space in the first quarter, including 220,000 square feet of new leases.
The next cycle of office-space demand will likely be driven by an inbound business migration and significant investments announced by office occupiers to expand their footprint in the Sun Belt regions. This is expected to boost the demand for HIW’s high-quality portfolio of office assets in the forthcoming quarters.
Highwoods has been following a disciplined capital-recycling strategy that entails disposing of non-core assets and redeploying the proceeds in premium asset acquisitions and accretive development projects. The company has been making concerted efforts to improve its portfolio quality by expanding its footprint in the high-growth best business districts markets through acquisitions and development activities.
In May, Highwoods announced the sale of two office buildings, One Independence Park and Riverbirch, for $40.2 million. The move came as part of its efforts to shed non-core assets and fortify its balance sheet and enhance its liquidity position to take advantage of future growth opportunities.
On the balance sheet front, the company has adequate liquidity from the cash in hand, cash flows from operating activities and other financing sources to meet short-term liquidity needs. Also, in the first quarter of 2023, it generated 82.5% unencumbered net operating income, providing scope to tap additional secured debt capital if required.
The company has no consolidated debt maturities until the fourth quarter of 2025. With adequate financial flexibility, HIW is well-positioned to capitalize on growth opportunities.
However, Highwoods faces intense competition from developers, owners and operators of office properties, as well as other commercial real estate. This restricts its ability to attract and retain tenants at relatively higher rents than its competitors and hinders its leasing activity. It also impacts the company’s ability to acquire high-quality properties at favorable prices. Further, higher development activities across its markets will likely result in new supply in the upcoming periods.
A high interest rate is another concern for Highwoods. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. Our estimate for 2023 interest expenses indicates an increase of 27.7% year over year.
Shares of this Zacks Rank #3 (Hold) company have gained 2.3% in the past three months against the industry’s fall of 1.4%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Ventas (VTR - Free Report) and Host Hotels & Resorts (HST - Free Report) . While Host Hotels sports a Zacks Rank #1 (Strong Buy), Ventas carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ventas’ current-year funds from operation (FFO) per share has moved marginally northward over the last 60 days to $2.98.
The Zacks Consensus Estimate for Host Hotels’ current-year FFO per share has been revised marginally northward over the last 30 days to $1.91.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.