On Mar 27, 2014, we issued an updated research report on Raleigh, NC-based real estate investment trust (:REIT), Highwoods Properties Inc. (HIW).
On Feb 10, Highwoods declared fourth-quarter 2013 funds from operations (:FFO) of 74 cents per share, beating the Zacks Consensus Estimate by a cent and the prior-year quarter figure by 7 cents. Improved results came on the back of higher revenue growth and efficient capital deployment activities, partly offset by a dip in occupancy rate.
We believe Highwoods' efforts to improve its portfolio base pave the way for bottom-line growth in the future. In particular, the company has been focusing on shifting its portfolio mix to high growth markets and offloading its asset base in non-core markets. Moreover, Highwoods has a decent balance sheet position and the recent credit rating upgrade from Fitch Ratings boosts the company’s creditworthiness.
However, although Highwood’s large development pipeline is encouraging for its future growth, it increases operational risks. Also, with elevated unemployment levels and persistent office space efficiency trends, the growth of demand for new office space is low and this is a cause of concern for Highwoods. Alongside, with a gradual reduction in the Fed’s support, interest rates are expected to increase, which may in turn hurt the rate-sensitive business of the company in the long run.
Over the last 30 days, the Zacks Consensus Estimate moved down 3.8% to $2.79 per share for 2014. On the other hand, it moved up by a penny to $3.02 for 2015. The stock currently has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Investors interested in REIT industry may consider stocks like Cousins Properties Inc. (CUZ), Public Storage (PSA) and Omega Healthcare Investors Inc. (OHI). All three stocks have a Zacks Rank #2 (Buy).
Note:FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.