10 Glenlake South

RALEIGH, NC—Highwoods Properties, a publicly traded REIT that boasts 32.1 million rentable square feet of office, industrial, and retail assets, has posted its first quarter earnings. Although it missed Wall Street estimates, the company reported $148.45 million in first quarter revenue.

“Our team is doing an impressive job of attracting new customers to the Highwoods portfolio, validating our concentration on high-quality, BBD-located assets,” says Ed Fritsch, president and CEO of Highwoods. “Market conditions continue to improve and we remain focused on harvesting the leasing upside of our 2013 acquisitions.”

In the first quarter, Highwoods leased 1.4 million square feet of second-generation space, including 1.2 million square feet of office space. That compares to the 2013 quarterly average of 956,000 square feet.

Cash rent growth was down 1.9%. The company also announced a $14.9 million build-to-suit with Biologics for its headquarters during the first quarter.

“Robust year-to-date leasing activity will more than offset the impact of the harsh winter, and we continue to expect positive same property cash NOI growth for the full year,” Fritsch says. “Given all this, we are pleased to raise both the low and high ends of our year-end occupancy outlook by 50 basis points and raise the low end of our FFO outlook by four cents, resulting in a two- cent increase in the midpoint.”

FFO was $61.2 million, or $0.66 per diluted share, for the first quarter of 2014. That compares to $57.2 million, or $0.67 per diluted share, for the first quarter of 2013.

RBC Capital Markets analyst Mike Salinksy reports Highwoods missed its forecast due to items tied to a combination of higher seasonal and compensation expenses. In a research note, he also said expense pressure weighed on same-store growth while transaction activity was limited. Elevated leasing in the quarter bumped midpoint earnings.

Cowen analysts James Sullivan and Tom Catherwood are classifying the stock as “market perform.” The company also raised its year-end occupancy assumption 50 bps to 91.3% to 92.5%.

“After commencing a new build-to-suit for Biologics at the end of 2013, HIW’s development pipeline includes five office assets at a total investment of $216.8M, 86.3% of which is pre-leased,” Sullivan and Catherwood wrote in a research note. “During the quarter, the Board of Trade Investment Company, an unconsolidated JV in which HIW has a 49.0% stake, sold an office property for $8.3M. The sale resulted in a net loss of $0.4M for HIW.”