Highwoods Properties HIW is seeing a recovery in demand for its high-quality, well-placed office properties as highlighted by a rebound in new leasing volume. Moreover, a solid balance sheet position augurs well.However, stiff competition from developers, owners and operators of office properties and large-scale asset sell-offs are headwinds to the stock.
HIW continues making concerted efforts to expand its footprint in the high-growth best business districts markets (BBD) and improve the quality of its overall portfolio on the back of acquisitions and development. As part of its strategy to fortify its presence in the targeted markets, Highwoods partnered with Brand Properties, LLC in January to develop a 135,000-square-foot, multi-customer office building in one of Atlanta’s BBD.
Highwoods is focused on developing projects in the key markets that are likely to generate a considerable annual net operating income (NOI) upon completion and stabilization.
With relaxations of the pandemic-related curbs and acceleration of vaccine roll-outs, there has been a noticeable return of the workforce to offices and other places of businesses of late. The office-REITs like Highwoods, SL Green SLG, Boston Properties BXP and Cousin Properties CUZ are capitalizing on these tailwinds.
Going forward, the next cycle of office-space demand will likely be driven by an inbound migration and significant investments announced by the office occupiers to expand their footprint in the Sun Belt regions. SL Green , Boston Properties and Highwoods are well poised to bank on the improving office real-estate market.
Additionally, HIW has adequate liquidity from cash in hand, cash flows from operating activities and other financing sources to meet its short-term liquidity needs.
The REIT exited the third quarter of 2021 with $27.9 million of cash and cash equivalents. Debt maturities are well-laddered with none until November 2022. Also, Highwoods generates 91.3% unencumbered NOI, providing scope for tapping additional secured debt capital if required.
However, Highwoods faces intense competition from developers, owners and operators of office properties as well as other commercial real estates, including sublease space available from its tenants. This restricts its ability to attract and retain tenants at relatively higher rents than its competitors, hindering its leasing activity.
Also, an extensive development pipeline exposes it to various operational risks, such as construction cost overruns and delays in development.
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