Highwood Properties, Inc.’s (HIW - Free Report) efforts to improve portfolio quality by focusing on assets in best business districts (BBD) bode well. However, assets concentrated in a few markets make it vulnerable to the economic and political doldrums prevalent in the area.
The company has an impressive earnings surprise history, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters. Results reflected a year-over-year improvement in same-property cash net operating income (NOI).
The company also raised its full-year funds from operations (FFO) per share outlook, revising it from the previous range of $3.35-$3.47 to $3.37-$3.47. The Zacks Consensus Estimate for Highwoods is within this range.
Further, the company’s assets are located in markets witnessing improvement in economy and job growth rates. Per management, with an accretive job and economic environment in the Southeastern markets, Highwood’s markets have met or surpassed the national average for annual employment growth rate for 27 consecutive quarters. Against this backdrop, demand and rent for Highwoods premium office spaces is expected to grow.
Further, to benefit from the recovering market, this real estate investment trust (REIT) has been expanding its footprint in high growth markets through asset acquisitions, dispositions and developments. To fund these acquisitions, the company is utilizing sale proceeds from non-core asset dispositions. In fact, on Feb 6, the company purchased two land parcels in CBD Nashville by using 1031 exchange funds accrued from dispositions in 2017. Such strategic moves will improve its portfolio quality without affecting the company’s balance sheet.
However, with dearth of trophy assets available for purchase, the acquisition market remains unfavorable. This has resulted in steep pricing of high-quality assets and intense competition from developers, owners and operators of office properties, as well as other commercial real estate
Furthermore, the company has a large development pipeline, with anticipated total investments of $440 million. This extensive development plan increases operational risks by exposing the company to rising construction costs, entitlement delays and lease-up risks.
The stock has gained 5.8% year to date, outperforming 3.2% growth registered by the industry it belongs to.
It currently carries a Zacks Rank #3 (Hold).
Stocks Worth a Look
Some better-ranked stocks from the same space are Arbor Realty Trust (ABR - Free Report) , Chatham Lodging Trust (CLDT - Free Report) and Prologis, Inc. (PLD - Free Report) . All three stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arbor Realty Trust’s Zacks Consensus Estimate for 2018 FFO per share rose 14.4% to $1.03 in a month’s time. Its shares have returned 16.7% over the past year.
Chatham Lodging’s FFO per share estimates for the current year inched up 1% to $1.93 in the past month. Its shares have gained 8% in the past year.
Prologis FFO per share estimates for 2018 inched up 0.8% to $2.98 over the past month. Its shares have gained 15.6% over the past year.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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