On Jul 5, 2013, we reaffirmed our long-term recommendation on
Highwoods Properties Inc.
), a real estate investment trust (REIT), at Neutral. Our
decision rests on the company's successful portfolio
repositioning measures. However, continued volatility in the
office sector with job cuts, and stiff competition from
commercial property developers remain our concerns.
Highwoods' first-quarter 2013 core FFO per share missed the
Zacks Consensus Estimate by a penny and the prior-year quarter
figure by 2 cents. The company has successfully implemented its
strategic plans of portfolio repositioning. These position
Highwoods favorably for growth. However, a rise in operating
expenses acted as the dampener.
As part of the restructuring activity, Highwoods recently
bought a Class A office property - One Alliance Center - which is
the sister building of its previously acquired Two Alliance
Center. The consequent strength in balance sheet and liquidity
position will likely help the company to take advantage of
distressed asset selling as office and retail asset values
continue to fall post
However, continued volatility in the office sector along with
job cuts and depressed market fundamentals may limit the
company's growth prospects. Moreover, stiff competition from
commercial property developers remains a headwind.
Over the last 60 days, the Zacks Consensus Estimate for FFO
per share for 2013 rose 0.4% to $2.76. However, for 2014, the
Zacks Consensus Estimate for FFO per share dropped 0.3% to $2.84.
Almost unchanged estimates made this a Zacks Rank #3 (Hold)
Other REITs to Consider
Some better performing REITs include
Sunstone Hotel Investors Inc.
Winthrop Realty Trust
). All these stocks carry a Zacks Rank #1 (Strong Buy).
Funds from operations, a widely used metric to gauge the
performance of REITs, are obtained after adding depreciation and
amortization and other non-cash expenses to net income.
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