Highwoods Properties' (HIW) Q3 FFO Beats, Outlook Improved

By Zacks Investment ResearchStock MarketsOct 24, 2017 10:21PM ET

www.investing.com/analysis/article-200221036

Highwoods Properties' (HIW) Q3 FFO Beats, Outlook Improved

By Zacks Investment Research | Oct 24, 2017 10:21PM ET

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BXP

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HIW

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Highwoods Properties Inc. (NYSE:HIW) reported third-quarter 2017 funds from operations (FFO) of 86 cents per share, beating the Zacks Consensus Estimate by a penny. It also compares favorably with the year-ago tally of 82 cents.

Results indicate strong leasing metrics and robust growth in straight-line rental income.

Total revenues for the quarter jumped 8.4% year over year to $180 million. In addition, the figure surpassed the Zacks Consensus Estimate of $178 million.

Highwoods Properties, Inc. Price, Consensus and EPS Surprise

Highwoods Properties, Inc. Price, Consensus and EPS Surprise | Highwoods Properties, Inc. Quote

Note: The EPS numbers presented in the above chart represent funds from operations (FFO) per share.

Quarter in Detail

Highwoods leased 1.1 million square feet of second-generation office space during the reported quarter. Same-property cash NOI climbed 3.4% year over year.

During the reported quarter, the company sold assets worth $93 million, which included 28.6% share in three joint-venture buildings. Subsequently, contribution to total revenues from joint ventures reduced to 1.5%.

The company also amended its term loan and unsecured revolving credit facility. The credit facility recast upsized Highwoods’ borrowing capacity by 125 million, extended maturity and lowered the borrowing spread by 10 basis points (bps).

As of Sep 30, 2017, Highwoods had $4.9 million of cash and cash equivalents compared with $49.5 million as of Dec 31, 2016.

2017 Outlook

Highwoods narrowed its 2017 FFO per share guidance range to $3.36-$3.38 from the previous range of $3.33-$3.38. The Zacks Consensus Estimate for 2017 is currently pegged at $3.38.

Our Viewpoint

Improving operating performance reflects brighter prospects for the company, going forward. Highwoods is making diligent efforts to expand its footprint in high-growth markets, and enhance the portfolio quality through prudent asset acquisitions and disposals. Furthermore, the company’s dispositions are anticipated to have miniscule impact on its revenues.

Its focus on high-quality office assets in best business districts (BBDs) bode well. With the recovery in the economy and labor markets, Highwoods will likely experience healthy demand for office space.

Nonetheless, Highwoods faces intense competition from developers, owners and operators of office properties, as well as other commercial real estate, including sublease space available from its tenants. This restricts the company’s ability to attract and retain tenants at relatively higher rents than its competitors.

Highwoods currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has gained 0.5% year to date, underperforming 2.3% growth registered by the industry it belongs to.

We now look forward to the earnings releases of other real estate investment trusts (REITs) like Ventas, Inc. (NYSE:VTR) , Boston Properties, Inc. (NYSE:BXP) and CyrusOne Inc (NASDAQ:CONE) . While Ventas will release earnings on Oct 27, Boston Properties and CyrusOne are slated to report their numbers on Nov 1 and Oct 26, respectively.

Note: FFO, 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.

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Highwoods Properties' (HIW) Q3 FFO Beats, Outlook Improved

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