Highwoods Misses Earnings by a Penny - Analyst Blog
May 01 2013 - 3:07AM
Zacks
Highwoods Properties
Inc. (HIW) – a real estate investment trust (REIT) –
reported first quarter 2013 core FFO (funds from operations) of 68
cents per share, missing the Zacks Consensus Estimate by a penny.
Reported FFO also fell short of the prior-year quarter figure of 70
cents.
Including the non-core items
impact, Highwoods’ reported FFO stood at $57.2 million or 67 cents
per share compared with $53.5 million or 70 cents per share in the
year-ago period.
Inside the
Headlines
Total revenue for the fourth
quarter jumped 9.7% to $137.0 million from $124.9 million in the
year-ago quarter. Moreover, total revenue exceeded the Zacks
Consensus Estimate of $135 million.
During the reported quarter,
same-store rental revenues increased 2.4% year over year to $118.0
million, while cash NOI (net operating income) climbed 3.0% to
$75.3 million.
During the quarter, same-store
average occupancy increased 60 basis points (bps) to 90.4% from
89.8% in prior-year quarter. Moreover, during the quarter,
Highwoods inked leases for space spanning 1.2 million square
feet.
Portfolio Restructuring
Activity
During the quarter under review,
Highwoods completed office property acquisitions worth $88.8
million in two of its core markets. Moreover, during the quarter,
the company penned a long-term build-to-suit deal with a leading
packaging and paper products firm – International Paper
Company (IP) – for constructing a new office building for
$56.1 million in Memphis.
In addition, Highwoods sold
non-core assets for $18.9 million during the first quarter. The
asset sale is part of the long-term strategy of the company to
improve the overall quality of its portfolio through the disposal
of non-core assets and the development and acquisition of infill
core assets.
Subsequent to quarter-end,
Highwoods divested 11 industrial buildings (spanning 862,000 square
feet) in Atlanta for $43.3 million. With this, over the past 12
months, Highwoods has sold around 1.2 million square feet of
non-core assets, which represents around 37% of its Atlanta
industrial portfolio.
Also, the company’s unconsolidated
joint ventures sold an unoccupied office building (spanning 148,000
square foot) in Charlotte for $6.0 million. Notably, year-to-date,
Highwoods has generated $109.6 million through $63.6 million of
non-core assets divesture.
Liquidity
As of Mar 31, 2013, Highwoods had $12.1 million of Cash and cash
equivalents, compared to $13.8 million as of Dec 31, 2012.
During the quarter, Highwoods
issued 1.3 million of common shares under its ATM (at-the-market)
equity program and generated net proceeds of $46.0 million.
Year-to-date, the company raised $46.0 million though its ATM
equity program.Consequently, the company’s leverage (including
preferred shares) was lowered 60 bps to 43.3%.
2013 Outlook
Reiterated
For full-year 2013, Highwoods
reaffirmed its FFO per share guidance in the range of $2.68 to
$2.81.
Our Viewpoint
Though Highwoods reported mixed
results in the reported quarter, we note that on the back of a
successful implementation of its strategic plan, 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
long-term demographic trends. Also, a strong and flexible balance
sheet further enables Highwoods to capitalize on potential
acquisition opportunities to fuel its top-line growth.
Yet, despite the continued
portfolio repositioning, Highwoodsstill has a large asset base in
low-barriers-to-entrySoutheastern markets, which historically have
not been strong long-term office markets. This undermines the
long-term growth potential of the company to some extent.
Highwoods currently holds a Zacks
Rank #3 (Hold). However, other REITs that are performing better
include DDR Corp. (DDR) and Simon Property
Group Inc. (SPG), both carrying a Zacks Rank #2 (Buy).
Note: Funds from operations, a
widely accepted and reported measure of REITs performance, are
derived by adding depreciation, amortization and other non-cash
expenses to net income.
DDR CORP (DDR): Free Stock Analysis Report
HIGHWOODS PPTYS (HIW): Free Stock Analysis Report
INTL PAPER (IP): Free Stock Analysis Report
SIMON PROPERTY (SPG): Free Stock Analysis Report
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