Highwoods Properties has made its second major investment in the Pittsburgh market, acquiring the 32-story EQT Plaza building for $99.2 million.
The deal comes about 14 months after Highwoods paid $214.1 million for PPG Place, a six-building complex in downtown Pittsburgh that includes 1.54 million square feet of office space.
EQT Plaza is less than three blocks away from PPG Place and will expand the Raleigh real estate investment trust’s footprint in Pittsburgh by 40 percent. EQT Plaza, which includes 616,000 square feet, is 92 percent occupied, with that number expected to rise to nearly 96 percent in the third quarter of next year.
Ed Fritsch, Highwoods CEO, said in an interview that Pittsburgh’s downtown office market has been thriving, boosted by a growing energy sector and a mix of medical, education and financial services companies.
“It’s a very, very diverse economy,” he said.
EQT, a natural gas producer, is EQT Plaza’s largest tenant, followed by the law firms Cohen & Grigsby and McGuireWoods. The deal makes Highwoods one of the larger landlords in downtown Pittsburgh, where about 45 percent of the city’s office space is located.
When Highwoods bought PPG Place in September 2011, it represented the first new market that the company, one of the largest office landlords in the Southeast, had entered in more than a decade. PPG Place was 81 percent leased at the time Highwoods acquired the properties, but that figure is expected to reach 88 percent by the end of the year.
The purchase price for EQT Plaza includes $8 million in planned building improvements. Highwoods paid for the deal with existing cash and by tapping its revolving credit line.
EQT Plaza is expected to generate $7 million in cash and $8 million in net operating income in 2013. The transaction was an off-market deal, meaning EQT Plaza wasn’t being marketed to prospective buyers.
Fritsch said Highwoods made a wish list of other assets it would like to acquire after entering the market.
“We identified EQT as one of the top five assets in downtown Pittsburgh,” he said. Further acquisitions are possible, Fritsch said, and Highwoods also hopes its growing presence in the city will help it win build-to-suit projects in the future.
Highwoods has been extremely active on the acquisition and disposition front over the past year. In September, the company acquired Two Alliance Center, one of Atlanta’s premier office towers, for $146.7 million. Earlier this year, Highwoods sold five aging buildings in Nashville for $41 million while acquiring three medical office buildings in Greensboro for $29.8 million.
The EQT Plaza acquisition fits the company’s strategy of targeting well-stabilized buildings that, while immediately adding to the company’s earnings, also have some room for improvement. The move is also consistent with the REIT’s long-term strategy of periodically pruning its portfolio of older assets and using the proceeds to pay down debt and acquire newer properties.
Highwoods shares closed up 6 cents at $32.17 on Tuesday. The stock is up 8 percent this year.