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Why Is Highwoods Properties (HIW) Up 6.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Highwoods Properties (HIW - Free Report) . Shares have added about 6.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Highwoods Properties due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Highwoods Properties Beats Q3 FFO & Revenue Estimates

Highwoods third-quarter FFO per share of 88 cents surpassed the Zacks Consensus Estimate of 85 cents. The reported tally excluded the net impact of 5 cents relating to the company’s market rotation plan. The figure also improved 2.3% year over year.

Encouraging business conditions facilitated healthy leasing volume and robust rent spreads for the company. Highwoods also extended its near-term lease expirations by signing renewal agreements.

Particularly, rental and other revenues of approximately $187.5 million in the quarter outpaced the Zacks Consensus Estimate of $185.9 million. Further, the reported figure compared favorably with the year-earlier quarter’s $179.4 million.

Quarter in Detail

Highwoods leased 939,000 square feet of second-generation office space during the third quarter. Rents were up 19.4% on a GAAP basis and 5.6% on a cash basis.

The company also signed a long-term renewal for largest remaining lease expiration in 2021. Highwoods achieved a weighted average lease term of 6.7 years. This is 14% longer than the prior five-quarter average.

Same-property cash NOI inched up 0.5% year over year and 1.9% excluding the effect from Laser Spine’s sudden closure. The company ended the July-September quarter with occupancy of 91.4%.

At the end of the quarter, Highwoods’ development pipeline totaled $500 million and was 73% pre-leased on a dollar-weighted basis. The company placed in service 5000 CentreGreen, a 170,000-square-foot office building in Cary’s Weston submarket during the reported period. The property was 100% leased.

As of Sep 30, 2019, Highwoods had around $116.7 million of cash and cash-equivalents compared with around $3.8 million reported as of Dec 31, 2018.

The company exited the September-end quarter with a net debt-to-EBITDAre ratio of 4.92x. This included the net impact relating primarily to Highwoods’ market rotation plan. It did not issue any shares under the ATM program.

2019 Outlook

Highwoods has revised its 2019 FFO per share guidance to reflect the net impact of the company’s market rotation plan. Accordingly, the company now anticipates full-year 2019 FFO per share in the range of $3.31 to $3.33 as compared with the $3.32-$3.38 issued earlier.

Further, for the ongoing year, dispositions and acquisitions are anticipated in the $37-$473 million band and up to $436 million, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Highwoods Properties has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Highwoods Properties has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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