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Highwoods Properties (HIW) Q1 FFO Top Estimates, Trims View (Revised)

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Highwoods Properties Inc.’s (HIW - Free Report) first-quarter 2020 funds from operations (FFO) per share of 93 cents surpassed the Zacks Consensus Estimate of 88 cents. The figure also improved 29.2% from 72 cents reported in the year-ago period.

Rental and other revenues of $192.8 million in the quarter increased 11.9% year over year. However, the reported figure marginally missed the Zacks Consensus Estimate of $193.3 million.

The first quarter was notable for the company as it completed the first phase of its two-phased market rotation plan announced on Aug 21, 2019 to exit the Greensboro and Memphis markets and enter the high-growth market of Charlotte.

The company revised its full-year outlook in the wake of the coronavirus pandemic and the prevailing market conditions.

With regard to its rental receipts for April, management informed that it collected 96% of its contractually-required rents for the month with rent deferrals granted to tenants, representing about 1% of its annualized rental revenues.

Due to the ongoing coronavirus pandemic-induced uncertainty, the company halted about $10-million worth of building improvement projects. Additionally, it expects around $10-$20 million of lower tenant improvement costs and lease commissions in 2020 due to slower speculative leasing.

Quarter in Detail

Highwoods leased 893,000 square feet of second-generation office space during the first quarter including 175,000 square feet of new leases. Rents were up 6% on a cash basis.

Same-property cash net operating income (NOI) increased 4% year over year.

The first quarter was productive for Highwoods as the company completed the first phase of its market-rotation plan, which is aimed to fortify its portfolio in BBDs of higher-growth markets, such as Charlotte, and exit the Greensboro and Memphis markets. In the quarter, the company sold 3.6 million square feet of assets in Greensboro and Memphis for $338.4 million. The company generated non-FFO gains of $152.7 million in connection with these sales.

As of Mar 31, 2020, Highwoods had $12.7 million of cash and cash-equivalents compared with $9.5 million reported as of Dec 31, 2019. The company exited the reported quarter with total available cash balance of $600 million and availability of funds under its revolving credit facility, scheduled to mature in January 2022, and a net debt-to-adjusted EBITDAre ratio of 4.90X. The company has no debt maturities in the next 12 months. For the remainder of 2020, Highwoods expects to fund about $133 million of its $500 million for development pipeline.

Guidance

Though the coronavirus pandemic did not leave a meaningful impact on its first-quarter results, the company expects its financials to be impacted in the remaining quarters. As a result, the company has revised its FFO per share guidance to $3.55-$3.68 from $3.60-$3.72 guided earlier. The Zacks Consensus Estimate for the same is currently pegged at $3.56.

The company updated its outlook based on some assumptions. Firstly, it expects its revenues for the remainder of the year from parking and related activities to be $3-$8 million lower than the original forecast. However, this will be partially offset by about $3-$5 million of net operating expense savings.

The company also expects its rental revenues for the remaining year to take a hit to the tune of $2-4 million from slower speculative leasing, which in turn, is likely to be mitigated by higher renewal activity. Additionally, the company expects general and administrative expenses to be about $2 million, lower than the initial projection owing to cost-cutting measures.

The company also expects lost rental revenues from customers experiencing financial difficulties due to bankruptcies or default as well as non-cash credit losses of straight line receivables.

Dividend Update

On Apr 28, Highwoods announced its quarterly cash dividend to be 48 cents per share, resulting in an annualized payout of $1.92 per share. The quarterly dividend will be paid out on Jun 8 to its shareholders of record as of May 18, 2020.

Highwoods currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Highwoods Properties, Inc. Price, Consensus and EPS Surprise

Highwoods Properties, Inc. Price, Consensus and EPS Surprise

Highwoods Properties, Inc. price-consensus-eps-surprise-chart | Highwoods Properties, Inc. Quote

 

We now look forward to the earnings releases of other REITs like SITE Centers Corp. (SITC - Free Report) , Public Storage (PSA - Free Report) and Cousins Properties Incorporated (CUZ - Free Report) . All three companies are scheduled to release their quarterly numbers on Apr 30.

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.

(We are reissuing this article to correct a mistake. The original article, issued on Apr 29, 2020, should no longer be relied upon.)

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