Highwoods Inks Build-to-Suit Deal

Zacks

Highwoods Properties Inc. (HIW), a real estate investment trust (:REIT), recently 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 in Memphis. The transaction is in line with Highwoods’ strategic move toward strengthening its relationship with existing customers.

Memphis, Tenn.-based, International Paper deals in industrial and consumer packaging and uncoated papers, with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa.

Per the deal, Highwoods will build a 9-story Class A office building spanning 241,000 square foot with structured parking on Poplar Avenue corridor submarket – the best business district (‘BBD’) of Memphis. As a matter of fact, the new to-be-build property will be positioned directly across the street from International Place, International Paper’s global headquarter and main campus.

Highwoods’ projects to invest around $56.1 million for the construction project, which includes land acquired by the company exclusively for this development. The construction of the property, which is 100% pre-leased to International Paper, is anticipated to commence in the fourth quarter of 2013. Highwoods expects the project to be completed by the second quarter of 2015.

Memphis is one of the chief markets of Highwoods, with Poplar Avenue corridor submarket being the significant area of operation. In particular, the company currently owns 1.3 million square feet in Memphis' Poplar Avenue corridor submarket. As a whole, Highwoods’ Memphis portfolio comprises 2.0 million square feet of office space, which was 86.5% occupied at the end of 2012.

We expect the abovementioned deal to boost Highwoods’ presence in the Poplar Avenue corridor submarket. Also, it is expected to enhance the company’s top-line growth and prove accretive to the earnings going forward.

Highwoods currently holds a Zacks Rank #3 (Hold). Other REITs that are performing better include Omega Healthcare Investors, Inc. (OHI) carrying a Zacks Rank #1 (Strong Buy) and Cousins Properties Inc. (CUZ) with a Zacks Rank #2 (Buy).

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