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Highwoods Divests Non-Core Assets

Zacks Equity Research

Highwoods Properties Inc. (HIW), a real estate investment trust (:REIT), has recently sold five non-core assets in the airport submarket of Nashville, TN for $41.0 million. The asset sale is part of the long-term strategy of the company to focus on high-growth Sun Belt markets and exit from the airport submarket of Nashville, which has been one of the weakest performing markets over the years.

Spanning 484,000 square feet of office space, the divested properties were 86.1% leased on an average and were expected to generate approximately $3.5 million of net operating income in 2012. Highwoods utilized the proceeds from the transaction to repay debt under its unsecured revolving credit facility.

The company is expected to record a non-FFO (funds from operations) gain of $6.8 million in third quarter 2012 in association with the asset sale. 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.

With the recent asset sale transaction, Highwoods presently has a portfolio of 20 office properties in Nashville totaling 2.6 million square feet of space and averaging a lease of 96.1%.

Highwoods is presently repositioning its portfolio to focus on stronger long-term markets and newer assets. 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 its long-term demographic trends.

Based in Raleigh, North Carolina, Highwoods owns and operates its properties through its wholly-owned subsidiary, Highwoods Realty Limited Partnerships. Highwoods owns or has management interests in office, industrial, retail, and service center properties, including development projects and apartment units across the U.S. It also provides customer-related and fee-based real estate management services for its properties as well as for third-party clients.

Highwoods is one of the biggest owners and operators of suburban office, industrial and retail properties in the Southeastern and Midwestern U.S., providing a complete line of real estate services to its customers and third parties through a fully-integrated organization. The core markets of the company include Florida, Georgia, Iowa, Maryland, Missouri, Mississippi, North Carolina, South Carolina, Tennessee and Virginia.

We maintain our long-term Neutral recommendation on Highwoods, which currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for Cousins Properties Inc. (CUZ), one of the competitors of Highwoods.

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