Rating Upgrade at Highwoods - Analyst Blog

Real estate investment trust (REIT) Highwoods Properties Inc. HIW received a rating upgrade from Fitch Ratings. The company now enjoys senior debt rating of BBB from BBB- with a stable outlook.

The rating upgrade of Highwoods is encouraging. In fact, this plays a major role in preserving investor confidence in the stock and helps boost its creditworthiness in the market.

Notably, this represents the third upgrade in the past nine months – the first was made last June by Moody's Investors Service, the rating unit of Moody's Corp. MCO and the second in last July by Standard & Poor's Ratings Services.  

Last month, Highwoods declared fourth-quarter 2013 funds from operations (FFO) of 74 cents per share, beating the Zacks Consensus Estimate by a cent. Improved results came on the back of higher revenue growth. At the end of the year, the company's leverage (including preferred stock) was 41.4% and it accomplished more than $1 billion of capital activity.

Highwoods has been focusing on shifting its portfolio mix to high growth markets and offloading its asset base in non-core markets. We believe that this portfolio repositioning efforts will aid Highwoods to boost its bottom-line growth in the future. However, the tepid recovery of the office market remains a concern.

Highwoods presently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Cousins Properties Inc. CUZ and Liberty Property Trust (LPT). Both these stocks carry a Zacks Rank #2 (Buy).

Note: Funds from operations, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.