Highwoods Inks Lease Deal in Nashville - Analyst Blog

Raleigh, NC-based real estate investment trust (REIT), Highwoods Properties Inc. HIW inked a lease deal with an existing customer for 91,000 square foot of space at Highwoods Plaza II in Nashville. The deal, which is long term in nature, reflects the decent demand for the company's properties in this area.

This space was previously occupied by LifePoint Hospitals (vacated in Feb 2014) for which Highwoods recently constructed a 203,000 square foot build-to-suit facility. The abovementioned deal reflects a net extension of 32,000 square feet of space by this current customer and with this, Highwoods has been able to relet 71% of the former LifePoint space. The company also has discussions underway for leasing the remaining 43,000 square feet of space.

As a matter of fact, the Nashville market is recuperating well from a tepid economy and is experiencing growth in population as well as employment. Its economy is diverse and has significant growth potential. Wage income is also improving while there is rising demand for premium quality office space. Particularly, the Brentwood submarket, where Highwoods Plaza II is situated, had a vacancy of just 6% as of Mar 31.  

We believe Highwoods' efforts to improve its portfolio base pave the way for bottom-line growth in the future. In particular, the company has been focusing on shifting its portfolio mix to high growth markets and offloading its asset base in non-core markets. Moreover, efficiency in releting space is encouraging and this particular deal helps secure an additional ten years of lease term.

Highwoods is scheduled to report its first-quarter 2014 results on Apr 29, after the closing bell. The Zacks Consensus Estimate for funds from operations (FFO) for the quarter is currently pegged at 71 cents, reflecting a year-over-year increase of nearly 6.0%.

Highwoods currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may also consider stocks like Cousins Properties Incorporated CUZ, Duke Realty Corporation DRE and Public Storage PSA. All three stocks have a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.