Highwoods Increases FFO Guidance - Analyst Blog
September 19 2011 - 2:23PM
Zacks
Highwoods Properties Inc. (HIW), a real estate
investment trust (REIT), has recently increased its fiscal 2011 FFO
(fund from operations) guidance from $2.48-$2.56 per share to
$2.52-$2.60, keeping in view the accretive effect of the
just-concluded acquisitions of two of the most sought-after office
properties.
Funds from operations, a widely used metric to gauge the
performance of REITs, is obtained after adding depreciation and
amortization and other non-cash expenses to net income.
The company acquired PPG Place – a six-building Class A office
complex spanning 1.54 million square feet with structured parking
in the heart of downtown Pittsburgh, for $214.1 million. The
purchase price included $17.1 million of planned near-term building
improvements and $8.1 million of future tenant improvements
committed under existing leases.
With the purchase, Highwoods also assumed a debt secured by the
property to the tune of $124.9 million (recorded at fair value)
bearing an effective interest rate of 4.27% and scheduled to mature
in November 2017. PPG Place is presently 81.2% leased and is
expected to generate full year 2012 cash and GAAP net operating
income of $16.2 million and $19.8 million, respectively.
The acquisition of PPG Place has enabled Highwoods to enter the
vibrant Pittsburg market that is characterized by a highly skilled
and dedicated workforce, with a 7.4% unemployment rate that is well
below the national average of 9.1%.
In addition, the city has experienced about $4.5 billion of
completed and in-process public and private investment over the
past five years, with the CBD (central business district) office
market particularly showing adequate resilience throughout the
recession.
Highwoods also purchased Riverwood 100 – a 24-story, 503,000
square foot Class A office building with structured parking in
Atlanta, for $86.3 million. The transaction price included $5.6
million of planned near-term building improvements and $2.4 million
of future tenant improvements committed under existing leases.
The purchase price also included the assumption of a secured
debt of $67.9 million (recorded at fair value), with an effective
interest rate of 5.45% and scheduled to mature in January 2014.
Riverwood 100, currently 87.0% leased, is expected to generate
full year 2012 GAAP net operating income of $7.0 million. With this
property, Highwoods presently has 21 wholly-owned office buildings
in Atlanta spanning over 3 million square feet of space that is
90.9% leased.
The two-pronged acquisition is part of the long-term strategy of
the company to own prime infill assets in top-tier submarkets with
significant barriers to entry and priced below replacement costs
with a diversified and financially sound customer base. A large
part of the company’s portfolio is now concentrated in the
high-growth Sun Belt markets, which provides above-average job
growth owing to its long-term demographic trends.
Based in Raleigh, North Carolina, 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 for 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.
COUSIN PROP INC (CUZ): Free Stock Analysis Report
HIGHWOODS PPTYS (HIW): Free Stock Analysis Report
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