Twenty years ago this month, Highwoods Properties instantly became a major player in the Triangle when the Raleigh real estate investment trust completed an initial public offering of stock.
The IPO, which raised nearly $200 million, made Highwoods the only local developer at the time that could construct buildings without needing approval from a bank. In the two decades since, the 432-employee company has grown into a REIT with a portfolio of 32.1 million square feet and a total market capitalization of nearly $3.7 billion.
The founders were folks who believed in integrity and had a strong work ethic, and I think those two characteristics are pillars of what we continue to pursue today, said Ed Fritsch, Highwoods CEO, during an interview late last week.
Fritsch was one of 13 CEOs of publicly traded office REITs that rang the closing bell Monday at the New York Stock Exchange in New York to celebrate their 20th anniversary.
The anniversary comes at a good time for Highwoods. Although it missed Wall Street estimates in its first quarter, analysts are expecting a strong 2014 from the company, in large part because it has a heavy presence in many fast-growing Southeast markets.
We believe (Highwoods) markets, portfolio and land bank are well positioned to benefit from outsized job, population and economic growth in its regions as the cycle progresses, Bank of American analysts wrote in a recent note. ... We also believe (Highwoods) markets are less likely to see excess new supply over the near terms without material rent growth which should help rents rise. This should also increase build to suit development prospects for (Highwoods).
Bank of America has a buy rating on the stock with a target price of $42. Highwoods shares closed Monday at $40.80, up 22 cents.
Gene Anderson, who has been a member of the companys board of directors since 1997, said Highwoods has shown both foresight and an ability to execute during its tenure as a public company.
The three most important words in real estate are location, timing and capital, and Highwoods has done a masterful job at balancing all three of those, he said. Its absolutely critical that you understand that real estate is a cyclical business. Highwoods does and has responded accordingly.
Anderson joined the Highwoods board after selling his Atlanta-based company, Anderson Properties. He said he was won over by the management team, which at the time was led by Ron Gibson, the founding chief executive who retired in 2004.
That year Highwoods began putting in place a new strategic plan that involved pruning its portfolio, shifting development to the denser parts of its markets and improving its balance sheet. Today the companys portfolio is 75 percent different than it was at the end of 2004, the result of nearly $4 billion in transactions.
Anderson said one of the more remarkable things about Highwoods is that it is still using the same basic strategic plan it adopted in 2004 and finding continued success.
The timely sale of assets before the financial crisis put Highwoods on solid financial footing at a time when many other REITs were loaded with debt. Fritsch said one of the things he is most proud of is the fact that Highwoods has continued to pay 100 percent of its employees health care and maintained its generous 401(k) match.
He said Highwoods is also the only office REIT that didnt reduce its dividend between mid-2008 and now.
In recent years, Highwoods has begun putting its strong balance sheet to work. The company has bought nearly $1.2 billion in assets over the past three years, including several blockbuster purchases in Atlanta and Pittsburgh.
Fritsch said its become more difficult to find properties in todays market.
Were still pursuing acquisitions but ... there seems to be a tsunami of money out there, he said. And as a result of that, pricing is getting, we think, a bit out of sync with the risk profile for certain assets.
Highwoods now has just under 1 million square feet of office space under construction, of which 87 percent is pre-leased. Those projects include a new campus for MetLife in Cary and a fourth building at its GlenLake office park near Crabtree Valley Mall.
Although Highwoods is continuing to pursue pre-leasing and built-to-suit opportunities, Fritsch said most of those projects are outside the Triangle.
We have high confidence that it would grow, he said. But the majority of what were pursuing now is in other markets.
Bracken: 919-829-4548; Twitter: @brackendavid