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This REIT Focus is on Highwoods Properties, Inc. (NYSE:HIW), a publicly traded REIT that provides leasing, management, development, construction and other related services for its office, industrial and retail properties. As of June 30, 2013, HIW owned interests in 291 in-service office, industrial and retail properties comprising 29.6 million sq. ft., 634 acres of undeveloped land and two office development properties. HIW's properties and development land are located in Florida, Georgia, Missouri, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia. The average occupancy of HIW's portfolio at 6/30/13 was 90% and the breakdown of revenue was 90% from office buildings, 6.3% from retail properties and 3.8% from industrial buildings. HIW owns a 100% general partner interest and a 95.8% limited partnership interest in its UpReit general partnership, Highwoods Realty Limited Partnership.

HIW was formed in Maryland in 1994, is traded on the NYSE, is based in Raleigh, NC, and its debt is rated BBB by Standard & Poor's. In July 2013, HIW completed a secondary offering of 4.31 million shares of its common stock at a price of approximately $35 per share with net proceeds of $150.9 million. The proceeds of the offering were used to repay a portion of its unsecured revolving credit facility.

HIW has 83.96 million common shares outstanding and a market capitalization of approximately $2.93 billion. HIW has a very experienced and well regarded management team that includes O. Temple Sloan Jr, Chairman of the Board since 1994, Edward J. Fritsch, President, CEO and Director since 1982 and Terry L. Stevens, Senior Vice President and CFO since 2003.

Select financial data for HIW as of the 6/30/13 10-Q and for the period 1/1-6/30/13 is as follows (in millions where applicable):

Real Estate Assets, Gross$4,030
Total Assets$3,539
Mortgages and Notes Payable$1,960
Stockholders' Equity$1,259
Revenue$275
Net Income$40
Net Income Per Share$.49
Cash Flow from Operations$117
Unsecured Revolving Credit Facility ($475 with $136 used)$339
Market Capitalization$2,930
Property Debt to:
Gross Real Estate Assets48%
Market Capitalization67%
Dividend and Yield ($1.70/sh.)4.7%
Valuation Methodology:
First Half Revenue Per Above Annualized$550
Less: Operating Expenses Annualized (excluding depreciation, amortization & interest expense, plus G&A expenses and other income)228
Annualized Net Operating Income 2013$322
Projected Inflation Rate at 3.5%x103.5%
Projected Forward NOI for Next Year$333
Projected Cap Rate7.75%
Projected Value of Real Estate Assets$4,297
Add: Net Operating Working Capital210
Add: Investment in Unconsolidated Affiliates (at book value)65
Total Projected Asset Value$4,572
Less: Total Debt Per Above(1,960)
Less: Series A Cumulative Redeemable Preferred Stock (29,077 shares at liquidation value of $1,000/sh.)(29)
Projected Net Asset Value$2,583
Shares Outstanding 87.66M (83.96M common stock shares and 3.7 common unit shares)
Projected NAV Per Share$29
Closing Market Price Per Share on 9/15/13$35

The gross real estate assets, property debt, net income and funds from operations for the years 2009 through Q2 2013 are shown in the table below:

(Millions)2009201020112012Q2 2013
Gross Real Estate Assets$3,335$3,356$3,470$3,756$4,030
Property Debt$1,507$1,556$1,899$1,888$1,960
Net Income$52$62$39$77$40
Funds From Operations$175$185$190$215$118

As shown above, our net asset value per share for HIW is $29 per share versus a market price of $35 per share. Current average cap rates for office, retail and industrial properties per CBRE are in the 5% to 10% range, depending on the location, tenancy and quality of the property. We have used an average cap rate of 7.75% due to HIW's portfolio being primarily Class A and B properties.

HIW's strengths include: attractive dividend yield of 4.7%, experienced management team, low leverage and diversified asset and tenant base. Weaknesses include, low average occupancy of 90% and minimal asset growth of only 20% since 2009 (excluding off- balance sheet joint ventures).

The price of HIW's common stock has decreased about 15% from its high in May 2013 of $41 per share and we would be a buyer when the price gets closer to $30 per share. HIW is one of the best managed REITs on the market and provides a solid dividend of 4.7%.

A five-year price chart of HIW is shown below:

(click to enlarge)

Source: REIT Focus: Highwoods Properties