Highwoods Properties HIW recently announced that it has signed a lease for 98,000 square feet of space at 11000 Weston Parkway in Cary. This lease has been signed with a new customer in one of the Raleigh area’s Best Business Districts (“BBD”) having a solid credit profile.
This marks the company’s achievement of more than 80% leasing of this property that encompasses 178,000 square feet of space and was wholly occupied by Fidelity Investments previously. Being positioned in the mixed-use Weston PUD, the property has been able to grab attention, which helped in signing lease for 144,000 square feet of space within the past 40 days.
Notably, Highwoods has been making concerted efforts to expand footprint in high-growth markets and improve portfolio quality. In addition, the company is following a disciplined capital-recycling strategy that entails disposing of non-core assets and investing the proceeds in premium asset acquisitions and for undertaking accretive development projects.
Recently, the company announced a number of strategic investment actions, in an effort to fortify its BBD office focus. Particularly, the company has agreed to acquire Bank of America Tower at Legacy Union for a total investment of $436 million, in a bid to enter CBD Charlotte. This entry is likely to be match-funded through asset sales. Notably, the acquisition is slated to close in November 2019.
Conversely, the company planned to exit Greensboro and Memphis markets. It has a two-phase plan for departure, with the first phase involving selling a hand-picked portfolio of assets in Greensboro and Memphis by mid-2020.
The latest market rotation plan is expected to help Highwoods ride on growth trajectory over the long run. Further, the lease-ups at the Charlotte office asset offer additional upside potential to the NOI and bolster its cash flows.
Highwoods’ diversified real estate portfolio, efforts to expand in high-growth markets, non-core assets sale and investing the proceeds for further expansion bode well for long-term growth. However, near-term earnings dilution on account of large-scale asset dispositions is a concern. Further, an extensive development pipeline exposes the company to higher development costs.
Shares of this Zacks Rank #3 (Hold) company have gained 13.1% so far this year compared with its industry’s 24.4% rally.
Stocks to Consider
Some better-ranked stocks from the real-estate space include Alexandria Real Estate Equities, Inc. ARE, Crown Castle International Corporation CCI and American Tower Corporation AMT, each carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alexandria Real Estate’s Zacks Consensus Estimate for 2019 funds from operations (FFO) per share has moved marginally north to $6.98 in the past two months.
Crown Castle’s FFO per share estimates for the current year have remained unchanged at $5.92 over the past month.
American Tower’s Zacks Consensus Estimate for the ongoing year’s FFO per share has moved up 1% to $7.87 in a month’s time.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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