On Apr 18, 2013, we reiterated our long-term recommendation on
Highwoods Properties Inc.
), a real estate investment trust (REIT), at Neutral. The move
reflects the company's decent leasing and portfolio restructuring
activity, completion of Tampa-based office building buyouts as
well as the recent long-term build-to-suit deal. Yet, volatility
in the office sector and pressure on rents remain our concerns.
Highwoods is one of the leading owners and operators of suburban
office, industrial and retail properties in the Southeastern and
Midwestern U.S. Its extensive presence has helped it generate
decent growth in revenues.
The company is focused on enhancing its business in premium
markets through the successful execution of its portfolio
repositioning measures. In February, Highwoods announced the
acquisition of Colonial Place I and II in order to boost its
presence in the vibrant Westshore submarket of Tampa.
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Moreover, in March, Highwoods penned a long-term build-to-suit
deal with a leading packaging and paper products firm -
) - for constructing a new office building in Memphis. The
transaction is in line with Highwoods' strategic move toward
strengthening its relationship with existing customers. Also,
Highwoods has a relatively strong balance sheet and adequate
Yet, we expect volatility in the office sector to continue with
the layoffs, which in turn would adversely affect the company's
top line. Additionally, the pressure on rent continues and this
remains our concern. Hence, we believe that the risk/reward
profile is currently balanced and maintain our Neutral
recommendation on the stock.
Highwoods reported fourth-quarter 2012 core FFO (funds from
operations) of 68 cents per share, in line with the Zacks
Consensus Estimate and 2 cents short of the prior-year quarter
figure. Though the company's results benefited from solid leasing
and portfolio restructuring activities, pressure on rent acted as
Over the last 60 days, the Zacks Consensus Estimate for full-year
2013 remained unchanged at $2.75 per share while the Zacks
Consensus Estimate for full-year 2014 stood at $2.84 per share.
In addition, Highwoods has now delivered positive earnings
surprises in 2 out of past 4 quarters with an average beat of
2.24%. Hence, Highwoods now has a Zacks Rank #3 (Hold).
Other Stocks to Consider
REITs that are currently performing well include
Federal Realty Investment Trust
Cousins Properties Inc.
), both carrying a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of
REITs, is obtained after adding depreciation and amortization and
other non-cash expenses to net income.