A large part of Highwoods Properties, Inc.’s (HIW - Free Report) portfolio is concentrated in high-growth Sun Belt markets, which has long-term favorable demographic trends. Also, the company has a well-diversified tenant base. This bodes well for its long-term growth.
Moreover, the company’s better-than-expected first-quarter 2020 FFO per share of 93 cents improved 29.2% from the 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. With regard to its rental receipts for April, management informed that it collected 96% of the contractually required rents for the month.
Also, the March-end quarter was productive for Highwoods as the company completed the first phase of its market-rotation plan, which is aimed to fortify the 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.
In fact, the company’s disciplined capital-recycling strategy that entails disposing of non-core assets, and using the proceeds for premium asset acquisitions and undertaking accretive development projects augur well for long-term growth.
The company has adequate liquidity from cash in hand, cash flows from operating activities and other financing sources to meet short-term liquidity needs. As of Mar 31, 2020, Highwoods had $12.7 million of cash and cash-equivalents, and full availability under its $600-million credit facility. Further, the company is trying to lower its leverage. As of first-quarter end, its net debt-to-EBITDAre ratio and leverage declined sequentially to 4.86 and 37.7%, respectively.
The company has no debt maturities to address until June 2021. Hence, a robust balance sheet, declining debt-to-capital ratio and strategic capital raises position Highwoods to adequately capitalize on growth opportunities. In fact, the company has ample resources to fund its development pipeline.
Nevertheless, stiff competition from other developers and operators affects the company’s ability to attract and retain tenants at relatively higher rents than its competitors. It also impacts the company’s ability to acquire properties at favorable prices.The occupancy level of its properties have also declined, of late. The unfavorable environment is expected to prevail amid the coronavirus pandemic. The company might witness slow speculative new leasing, impacting rental revenue growth.
Moreover, though an extensive development pipeline seems encouraging for long-term growth, it exposes the REIT to various operational risks, such as construction cost overruns. In addition, Highwoods’ efforts to shed non-core assets will have a dilutive impact on earnings in the near term.
Further, the REIT’s assets are mainly concentrated in Atlanta, Nashville, Raleigh and Tampa. As of Dec 31, 2019, the contribution from these markets to the company’s annualized cash revenues were 19.3%, 18.5%, 16.9% and 12.9%, respectively. Hence, any economic or political downturn in these markets might affect Highwoods’ performance.
In addition, the Zacks Consensus Estimate for 2020 funds for operation (FFO) per share moved marginally south to $3.57 over the past month.
This Zacks Rank #3 (Hold) company has underperformed its industry over the past year. Shares of Highwoods have depreciated 22.5%, while the industry has lost 15.1% during this period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Innovative Industrial Properties, Inc.’s (IIPR - Free Report) Zacks Consensus Estimate for 2020 funds from operations (FFO) per share moved marginally upward to $5.34 over the past month. The stock currently flaunts a Zacks Rank of 1.
One Liberty Properties, Inc.’s (OLP - Free Report) Zacks Consensus Estimate for the current-year FFO per share moved 2.2% north to $1.89 over the past month. The stock currently sports a Zacks Rank of 1.
Postal Realty Trust, Inc.’s (PSTL - Free Report) Zacks Consensus Estimate for the ongoing year’s FFO per share moved 3.7% upward to $1.11 in two months’ time. The stock currently sports a Zacks Rank of 1.
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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