Highwoods Properties, Inc. (HIW), a leading real estate investment trust (REIT), has recently signed a long-term lease agreement with the U.S. General Services Administration (GSA) for 60,005 square feet of space at Highwoods Center II building in Atlanta. The leased property would operate as a local office for the U.S. Customs and Border Protection Agency, serving the Hartsfield-Jackson Atlanta International Airport.
In accordance with the various security and operational features required by the federal government, Highwoods would undertake substantial renovation and upgrade of the property at an estimated total cost of $11.5 million. Consequently, the building would be removed from the in-service portfolio of the company and reclassified as a redevelopment property.
The building would also be certified by the Leadership in Energy and Environmental Design (“LEED”), an internationally recognized green building certification system aimed at increasing energy savings and reducing carbon-dioxide emissions. Construction work on the project is expected to be completed by the fourth quarter of 2011. Highwoods expects the property to generate a stabilized cash yield of 8.5% over the lease tenure.
Based in Raleigh, North Carolina, Highwoods owns and operates its properties through its wholly-owned subsidiary, Highwoods Realty Limited Partnerships. The company has interests in office, industrial, retail and service center properties, including development projects and apartment units. It also provides customer-related and fee-based real estate management services for its properties and third-party clients.
Highwoods is the largest owner and operator of suburban office properties in the Southeast. As of September 30, 2010, Highwoods had interests in 329 in-service office, industrial holdings and retail properties spanning 32.3 million square feet of gross leasable space. In addition, it also owns 581 acres of developable land.
Currently, Highwoods is in the process of repositioning its portfolio to focus on stronger long-term markets and newer assets. A large part of the company’s portfolio is now concentrated in high-growth Sun Belt markets, such as Atlanta, Nashville and Tampa, which should exhibit above-average job growth due to positive demographic trends.
We maintain our Neutral recommendation on Highwoods, which presently has a Zacks #2 Rank that translates into a short-term Buy recommendation and indicates that the stock is expected to perform well above the overall U.S.equity market for the next 1-3 months.
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