The Raleigh, NC-based REIT's executive team also reported strongFFO as well as net income for the quarter ending June 30. In thesecond-quarter earnings call, the performance was labeled as"stronger-than-expected operating results" by analysts atMilwaukee-based Robert W. Baird & Co. Highwoods, which wasspotlighted in a in aGlobeSt.com feature with senior vice president MichaelBeale recently, is primarily an office REIT that generates 83.2% ofits revenue from its office properties. It also owns some retailand industrial properties that account for 9.2% and 7.6% of itsrevenue, respectively.

|

As Highwoods COO Mike Harris pointed out during the conferencecall, "leasing activity has slowed slightly, but deals are beingsigned." Harris cited the 1.5 million sf of second-quarter leasesversus 1.6 million sf in last year's second quarter, adding "thecurrent leasing theme points towards shorter-term renewals withmany customers choosing to stay put until economic uncertaintypasses."

|

Although the REIT would prefer to sign longer-term leases--asall building owners generally would--Harris said Highwoods isdirecting its leasing agents to get deals done. "Customers arewilling to pay more and accept lower TI allowances for theflexibility of shorter term," he said.

|

Harris reported occupancy in Highwoods' buildings is higher thanthe overall market average in all of its markets, adding the officeportfolio in general is faring well. "Within our portfolio we sawno increase in sublease space, no deterioration in accountsreceivables and an improvement in net effective rents," he said.The company is facing higher operating expenses as a result ofrising utility charges, fuel costs and property taxes--factorsaffecting all building owners.

|

Ed Fritsch, president and CEO, reported Highwoods' developmentpipeline now stands at $336 million and is 66% preleased. Year todate, the company has delivered $55 million of projects withanother $146 million are scheduled to delivered by yearend.Highwoods BayCenter in Tampa is the city's first new waterfront officebuilding in the last two decades. It has reached 85% occupancyafter opening a year ago.

|

In discussing acquisition opportunities, Fritsch mentioned atheme that commercial real estate experts have been commenting onincreasingly often in recent months: the wide spread between bidand ask rates for commercial properties. "One of the reasons therehas been limited property trading in our markets is the wide spreadbetween the bid and the ask," he said. The spread has potential tonarrow as sellers who are financially motivated "face increasingpressure to sell," he said, which "could mean buying opportunitiesfor us down the road."

|

With Highwoods' FFO growing 19% to $42.3 million in the secondquarter in comparison with last year's second quarter and netincome rising to $12 million from $4 million in the comparablequarter last year, Baird analysts Christopher R. Lucas, Avi Lernerand David S. Nebinski commented in their recent research reportthat "this quarter's results were impressive and the moderatingeconomic environment has yet to impact Highwoods' financialresults."

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.