Highwoods acquires land in Nashville, meets earning expectations

dbracken@newsobserver.comFebruary 12, 2013 

Highwoods Properties reported fourth-quarter earnings late Tuesday that met Wall Street expectations as the company ended the year with more than 90 percent of its portfolio occupied.

Highwoods also announced that it paid $15 million for 68 acres in Nashville, Tenn., in the fourth quarter. The vacant land is to be part of a larger development that will feature office, retail, residential and a hotel.

Highwoods is to develop the infrastructure for the 145-acre project, as well as be the exclusive developer of as much as 1.3 million square feet of office space.

The move is in line with Highwoods’ efforts to increase the amount of office space in its portfolio that is near the kinds of amenities that workers now crave, Ed Fritsch, the company’s CEO, said in an interview.

Highwoods acquired $296 million in assets last year, including high-profile buildings in downtown Pittsburgh and Atlanta’s Buckhead area. Fritsch said Highwoods is eager to expand its presence in downtown Raleigh, where it owns the PNC Plaza building.

“We have a keen interest in having a greater position in downtown,” Fritsch said. “We’re continuing to work to see if we can identify the right way to expand our footprint in downtown Raleigh.”

Highwoods, the Triangle’s largest office landlord, ended the year with an occupancy rate of 90.9 percent, up from 90 percent a year ago.

The Raleigh real estate investment trust reported funds from operations, a profitability measure for REITs, of 68 cents per share for the quarter, compared with the 70 cents per share the company reported in the fourth quarter of 2011. For the year, funds from operations increased 5.8 percent to $2.73 per share, excluding debt extinguishment and acquisition costs.

Fritsch expressed cautious optimism about 2013, saying the second half of the year could be more promising if officials in Washington are able to resolve the issues related to sequestration – the automatic budget cuts that are scheduled to take effect March 1 – and if no other surprises arise that could erode companies’ confidence.

“We can gain some confidence in just knowing the stockpiles of cash that exist on balance sheets,” Fritsch said. He said many companies may be positioned to expand after having done all they can to improve their performance through IT investments or other productivity measures.

“We may be hitting a decent window where there continues to be an absence of new development, but there’s less second-generation space available,” Fritsch said. “That may create a somewhat unique and positive environment.”

Dave Rodgers, an analyst with Robert W. Baird & Co., said Highwoods distinguished itself in recent years with its solid balance sheet and its high quality of assets, which allowed it to maintain high occupancy levels while many other public and private competitors struggled.

Rodgers, who has a neutral rating on the company’s stock, said Highwoods’ decision to enter the Pittsburgh market in 2011 has been particularly successful.

“They’ve gotten a good return,” he said. “ ... Investors have responded fairly well to that and the fact that the company continues to keep their risk profile fairly low.”

Rodgers said several of Highwoods’ competitors in the Sunbelt region are undergoing there own successful transformations, and may be in a slightly better position to benefit as the office market recovers.

“We think we are at the beginning of a three-year cyclical uptrend, particularly in the Southeastern markets,” he said. “ ... If that continues, which we believe it can, we want to be on the side of a little more risk. We want to take on a little more risk with both assets and in some cases balance sheet.”

Highwoods shares closed Tuesday at $36.46, up 11 cents. The stock is up 9 percent this year.

Bracken: 919-829-4548

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