Back to top

Analyst Blog

Zacks Equity Research

Highwoods Properties (HIW) Buys Office Tower in CBD Raleigh


Trades from $3

Highwoods Properties, Inc. (HIW - Analyst Report) announced the acquisition of the office property – Charter Square – in CBD Raleigh. The buyout of this 11-story, Class A office tower, comprising 243,000 square feet, fits the company’s strategy of expansion in the BBDs (best business districts).

Highwoods’ total investment in Charter Square is estimated to be $83.5 million. This includes $5.1 million of scheduled near-term building upgrades as well as anticipated leasing capital expenses for bringing the property to stabilization. The acquired building, which was delivered in 2015, is presently 70% leased.

This buyout is encouraging with the company projecting annual cash and GAAP net operating income of around $6.0 million upon stabilization and is anticipated to take place during 2018. Moreover, there was no debt assumption with this buyout deal. The company said that $0.3 million of acquisition costs is slated to be expensed in the third quarter.

Notably, Highwoods has been making concerted efforts to fortify its footprint in high-growth markets through premium asset acquisitions and developments. Specifically, the company is currently focused on BBD office properties.

In fact, Highwoods now enjoys full ownership of 913,000 square feet of office space in CBD Raleigh that is considered as one of the city’s BBDs. Moreover, it has a development site that can accommodate up to 300,000 square feet of Class A office. Concentrated within three city blocks, this CBD Raleigh portfolio is likely to augment the company’s top line going forward. Its total investments in the CBD Raleigh buildings amount to $251 million.

Highwoods also declared raising $80.5 million of equity since Aug 3. Specifically, the company sold 1.55 million shares of its common stock at an average gross sales price of $52.79 per share.

Going forward, a diversified portfolio with several top-notch tenants and the presence of high-quality office assets in BBDs of the core markets bode well for the company’s growth. Yet, stiff competition and any hike in interest rate remain concerns.

Highwoods currently has a Zacks Rank #3 (Hold).

Investors can also consider some better-ranked stocks in the REIT industry like American Tower Corporation (AMT - Analyst Report) , CorEnergy Infrastructure Trust, Inc. (CORR - Snapshot Report) and InfraREIT, Inc. (HIFR - Snapshot Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Tower is a consistent outperformer, having beaten the Zacks Consensus Estimate over all the trailing four quarters, with an average surprise of 6.16%. CorEnergy Infrastructure has experienced 3.9% upward revision in estimates in the past two months. Also, InfraREIT has a long-term expected growth rate of 10% against the industry average of 5.8%, which is encouraging.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>