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Highwoods (HIW) Stock Rises 31.9%YTD: Will the Trend Last?
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Shares of Highwoods Properties (HIW - Free Report) have rallied 31.9% year to date, outperforming the industry’s growth of 2.3%.
This office real estate investment trust (REIT) is well-positioned to benefit from the growing demand for its premier office properties concentrated in high-growth Sun Belt markets. Its disciplined capital-recycling program and accretive development projects are other tailwinds. A healthy balance sheet position augurs well for long-term growth.
Later in July 2024, HIW reported second-quarter 2024 funds from operations (FFO) per share of 98 cents, which beat the Zacks Consensus Estimate of 90 cents. The figure was also higher than the prior-year quarter’s 94 cents.
Quarterly results reflected a decline in rental property and other expenses year over year and improving leasing activity.
The company, currently carrying a Zacks Rank #3 (Hold), also raised its guidance for 2024. It now expects FFO per share in the range of $3.54-$3.62, up from the prior guided range of $3.46-$3.61. The Zacks Consensus Estimate for the same is currently pegged at $3.58, which falls within the guided range.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price and check whether this trend will last or not.
Highwoods has a large part of its portfolio concentrated in high-growth Sun Belt markets, and the company is poised to benefit from this portfolio focus. These markets exhibit long-term favorable demographic trends and are expected to continue experiencing above-average job growth.
It also has a well-diversified tenant base that includes several industry bellwethers. These factors are expected to support its rent growth over the long term. Highwoods’ average in-place cash rent was up 4.8% per square foot in the second quarter of 2024 from the prior year quarter.
Highwoods is seeing a recovery in demand for its high-quality and well-placed office properties, as highlighted by a rebound in new leasing volume. The company leased 909,000 square feet of second-generation office space in the second quarter, including 352,000 square feet of new leases. During the second quarter, the company also signed 61,000 square feet of first-generation leases. Upon stabilization, the company expects these projects to provide around $40 million incremental NOI and be a significant driver of cash flows.
With the next cycle of office space demand likely to be driven by inbound migration and significant investments announced by office occupiers to expand their footprint in the Sun Belt regions, as well as additional hiring plans in the company’s markets, Highwoods is likely to experience healthy demand for its properties, boosting leasing activity. Also, the rise in the number of tenants returning to offices or announcing plans to come back is likely to support office real estate market fundamentals.
HIW has been following a disciplined capital-recycling strategy that entails disposing of non-core assets and redeploying the proceeds in premium asset acquisitions and accretive development projects. It has made efforts over the years to improve its portfolio quality by expanding its footprint in the high-growth best business district markets through acquisitions and development initiatives.
In the first half of the year, Highwoods disposed of a total of 435,000 square feet in Raleigh for an aggregate value of $79.4 million. Moreover, management expects to carry out an additional disposition of up to $150 million in 2024. As of Jun 30, 2024, Highwoods’ development pipeline aggregated $505.6 million (at the company’s share) and is 45% pre-leased.
The company maintains a healthy balance sheet position, with no consolidated debt maturities until the second quarter of 2026. As of Jun 30, 2024, HIW had around $27 million of available cash and a revolving credit facility amounting to $750 million.
Also, in the second quarter of 2024, Highwoods generated 80.7% unencumbered NOI (at the company’s share), providing scope to tap additional secured debt capital if required. Hence, a solid balance sheet positions Highwoods to adequately fund its remaining capital obligations, such as the development pipeline and capitalize on growth opportunities.
However, competition from other industry players is likely to limit its pricing power and hurt profitability. High interest rates add to its woes.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share stands at $2.66, which indicates an increase of 1.5% from the year-ago reported figure.
The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share is pegged at $8.08, which suggests year-over-year growth of 8.3%.
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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Highwoods (HIW) Stock Rises 31.9%YTD: Will the Trend Last?
Shares of Highwoods Properties (HIW - Free Report) have rallied 31.9% year to date, outperforming the industry’s growth of 2.3%.
This office real estate investment trust (REIT) is well-positioned to benefit from the growing demand for its premier office properties concentrated in high-growth Sun Belt markets. Its disciplined capital-recycling program and accretive development projects are other tailwinds. A healthy balance sheet position augurs well for long-term growth.
Later in July 2024, HIW reported second-quarter 2024 funds from operations (FFO) per share of 98 cents, which beat the Zacks Consensus Estimate of 90 cents. The figure was also higher than the prior-year quarter’s 94 cents.
Quarterly results reflected a decline in rental property and other expenses year over year and improving leasing activity.
The company, currently carrying a Zacks Rank #3 (Hold), also raised its guidance for 2024. It now expects FFO per share in the range of $3.54-$3.62, up from the prior guided range of $3.46-$3.61. The Zacks Consensus Estimate for the same is currently pegged at $3.58, which falls within the guided range.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price and check whether this trend will last or not.
Highwoods has a large part of its portfolio concentrated in high-growth Sun Belt markets, and the company is poised to benefit from this portfolio focus. These markets exhibit long-term favorable demographic trends and are expected to continue experiencing above-average job growth.
It also has a well-diversified tenant base that includes several industry bellwethers. These factors are expected to support its rent growth over the long term. Highwoods’ average in-place cash rent was up 4.8% per square foot in the second quarter of 2024 from the prior year quarter.
Highwoods is seeing a recovery in demand for its high-quality and well-placed office properties, as highlighted by a rebound in new leasing volume. The company leased 909,000 square feet of second-generation office space in the second quarter, including 352,000 square feet of new leases. During the second quarter, the company also signed 61,000 square feet of first-generation leases. Upon stabilization, the company expects these projects to provide around $40 million incremental NOI and be a significant driver of cash flows.
With the next cycle of office space demand likely to be driven by inbound migration and significant investments announced by office occupiers to expand their footprint in the Sun Belt regions, as well as additional hiring plans in the company’s markets, Highwoods is likely to experience healthy demand for its properties, boosting leasing activity. Also, the rise in the number of tenants returning to offices or announcing plans to come back is likely to support office real estate market fundamentals.
HIW has been following a disciplined capital-recycling strategy that entails disposing of non-core assets and redeploying the proceeds in premium asset acquisitions and accretive development projects. It has made efforts over the years to improve its portfolio quality by expanding its footprint in the high-growth best business district markets through acquisitions and development initiatives.
In the first half of the year, Highwoods disposed of a total of 435,000 square feet in Raleigh for an aggregate value of $79.4 million. Moreover, management expects to carry out an additional disposition of up to $150 million in 2024. As of Jun 30, 2024, Highwoods’ development pipeline aggregated $505.6 million (at the company’s share) and is 45% pre-leased.
The company maintains a healthy balance sheet position, with no consolidated debt maturities until the second quarter of 2026. As of Jun 30, 2024, HIW had around $27 million of available cash and a revolving credit facility amounting to $750 million.
Also, in the second quarter of 2024, Highwoods generated 80.7% unencumbered NOI (at the company’s share), providing scope to tap additional secured debt capital if required. Hence, a solid balance sheet positions Highwoods to adequately fund its remaining capital obligations, such as the development pipeline and capitalize on growth opportunities.
However, competition from other industry players is likely to limit its pricing power and hurt profitability. High interest rates add to its woes.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Cousins Properties (CUZ - Free Report) and Lamar Advertising (LAMR - Free Report) ,each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share stands at $2.66, which indicates an increase of 1.5% from the year-ago reported figure.
The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share is pegged at $8.08, which suggests year-over-year growth of 8.3%.
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.