Highwoods Properties Stock Up 31.1% in 6 Months: Will the Trend Last?

Shares of Highwoods Properties HIW have rallied 31.1% in the past six months, outperforming the industry’s growth of 15.8%.

This office real estate investment trust (REIT) is well-poised to benefit from the rising demand for its premium, highly amenitized office properties, well-diversified tenant base, efforts to expand in the high-growth markets, aggressive capital-recycling program and solid balance sheet strength.

Early in September, HIW reported that it is witnessing strong leasing activity supported by demand recovery. Since the beginning of the year through Sept. 9, this REIT has signed 37% more new deals than the whole of 2023.

Analysts seem positive about this company, currently carrying a Zacks Rank #3 (Hold), with the Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share being revised northward to $3.59 over the past month.

Image Source: Zacks Investment Research

Factors Behind HIW Stock Price Surge: Will This Last?

Highwoods has a large part of its portfolio concentrated in high-growth Sun Belt markets. These markets exhibit long-term favorable demographic trends and are expected to continue experiencing above-average job growth. Highwoods has a well-diversified tenant base that includes several bellwethers.These factors are likely to support its rent growth over the long term. In the second quarter of 2024, HIW’s average in-place cash rent witnessed growth of 4.8% per square foot year over year.

Highwoods is seeing a recovery in demand for its high-quality and well-placed office properties, as highlighted by a rebound in new leasing volume. Going forward, the next cycle of office space demand is likely to be driven by inbound migration and significant investments announced by office occupiers to expand their footprint in Sun Belt regions, as well as additional hiring plans in the company’s markets. The company is seeing an increasing number of tenants returning to offices or announcing plans to come back. This is likely to support office real estate market fundamentals.

In September 2024, HIW reported that it is experiencing a demand recovery, as evident in its strong leasing activity. The company has signed 738,000 square feet of second-generation leases since July 1, 2024, through Sept. 9. This also includes new leases spanning more than 400,000 square feet.

HIW has been following a disciplined capital-recycling strategy that entails disposing of non-core assets and redeploying the proceedings in premium asset acquisitions and accretive development projects. It has made efforts over the years to improve its portfolio quality by expanding its footprint in the high-growth best business district markets through acquisitions and development initiatives. From 2010 to 2023, Highwoods completed buyouts worth $3.6 billion, while dispositions totaled $3.0 billion.

The company maintains a healthy balance sheet position, with no consolidated debt maturities until the second quarter of 2026. As of June 30, 2024, HIW had around $27 million of available cash and a revolving credit facility amounting to $750 million. In the second quarter of 2024, Highwoods generated 80.7% unencumbered NOI (at the company’s share), providing scope to tap additional secured debt capital if required.

Key Risks for HIW

Competition from developers, owners and operators of office properties and a significant development outlay are likely to weigh on Highwoods.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Cousins Properties CUZ and Lamar Advertising LAMR, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share stands at $2.67, which indicates an increase of 1.9% from the year-ago reported figure.

The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share is pegged at $8.09, which suggests year-over-year growth of 8.3%.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report