Highwoods Properties Inc. ( HIW ) - a real estate
investment trust (REIT) - reported first quarter 2013 core FFO
(funds from operations) of 68 cents per share, missing the Zacks
Consensus Estimate by a penny. Reported FFO also fell short of the
prior-year quarter figure of 70 cents.
Including the non-core items impact, Highwoods' reported FFO
stood at $57.2 million or 67 cents per share compared with $53.5
million or 70 cents per share in the year-ago period.
Inside the Headlines
Total revenue for the fourth quarter jumped 9.7% to $137.0
million from $124.9 million in the year-ago quarter. Moreover,
total revenue exceeded the Zacks Consensus Estimate of $135
During the reported quarter, same-store rental revenues
increased 2.4% year over year to $118.0 million, while cash NOI
(net operating income) climbed 3.0% to $75.3 million.
During the quarter, same-store average occupancy increased 60
basis points (bps) to 90.4% from 89.8% in prior-year quarter.
Moreover, during the quarter, Highwoods inked leases for space
spanning 1.2 million square feet.
Portfolio Restructuring Activity
During the quarter under review, Highwoods completed office
property acquisitions worth $88.8 million in two of its core
markets. Moreover, during the quarter, the company penned a
long-term build-to-suit deal with a leading packaging and paper
products firm - International Paper Company ( IP ) - for constructing
a new office building for $56.1 million in Memphis.
In addition, Highwoods sold non-core assets for $18.9 million
during the first quarter. The asset sale is part of the long-term
strategy of the company to improve the overall quality of its
portfolio through the disposal of non-core assets and the
development and acquisition of infill core assets.
Subsequent to quarter-end, Highwoods divested 11 industrial
buildings (spanning 862,000 square feet) in Atlanta for $43.3
million. With this, over the past 12 months, Highwoods has sold
around 1.2 million square feet of non-core assets, which represents
around 37% of its Atlanta industrial portfolio.
Also, the company's unconsolidated joint ventures sold an
unoccupied office building (spanning 148,000 square foot) in
Charlotte for $6.0 million. Notably, year-to-date, Highwoods has
generated $109.6 million through $63.6 million of non-core assets
As of Mar 31, 2013, Highwoods had $12.1 million of Cash and cash
equivalents, compared to $13.8 million as of Dec 31, 2012.
During the quarter, Highwoods issued 1.3 million of common
shares under its ATM (at-the-market) equity program and generated
net proceeds of $46.0 million. Year-to-date, the company raised
$46.0 million though its ATM equity program.Consequently, the
company's leverage (including preferred shares) was lowered 60 bps
2013 Outlook Reiterated
For full-year 2013, Highwoods reaffirmed its FFO per share
guidance in the range of $2.68 to $2.81.
Though Highwoods reported mixed results in the reported quarter,
we note that on the back of a successful implementation of its
strategic plan, a large part of the company's portfolio is now
concentrated in the high-growth Sun Belt markets, which provide
above-average job growth owing to long-term demographic trends.
Also, a strong and flexible balance sheet further enables Highwoods
to capitalize on potential acquisition opportunities to fuel its
Yet, despite the continued portfolio repositioning,
Highwoodsstill has a large asset base in
low-barriers-to-entrySoutheastern markets, which historically have
not been strong long-term office markets. This undermines the
long-term growth potential of the company to some extent.
Highwoods currently holds a Zacks Rank #3 (Hold). However, other
REITs that are performing better include DDR Corp.
( DDR ) and
Simon Property Group Inc. ( SPG ), both carrying a
Zacks Rank #2 (Buy).
Note: Funds from operations, a widely accepted and reported
measure of REITs performance, are derived by adding depreciation,
amortization and other non-cash expenses to net income.DDR CORP (DDR): Free Stock Analysis ReportHIGHWOODS PPTYS (HIW): Free Stock Analysis
ReportINTL PAPER (IP): Free Stock Analysis ReportSIMON PROPERTY (SPG): Free Stock Analysis
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