Highwoods Properties (HIW) Down 4.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Highwoods Properties (HIW). Shares have lost about 4.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Highwoods Properties due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Highwoods Properties Q1 FFO Top Estimates, Trims View

Highwoods Properties’ first-quarter 2020 FFO per share of 93 cents surpassed the Zacks Consensus Estimate of 88 cents. The figure also improved 29.2% from 72 cents reported in the year-ago period.

Rental and other revenues of $192.8 million in the quarter increased 11.9% year over year. However, the reported figure marginally missed the Zacks Consensus Estimate of $193.3 million.

The first quarter was notable for the company as it completed the first phase of its two-phased market rotation plan announced on Aug 21, 2019 to exit the Greensboro and Memphis markets and enter the high-growth market of Charlotte.

The company revised its full-year outlook in the wake of the coronavirus pandemic and the prevailing market conditions.

With regard to its rental receipts for April, management informed that it collected 96% of its contractually-required rents for the month with rent deferrals granted to tenants, representing about 1% of its annualized rental revenues.

Due to the ongoing coronavirus pandemic-induced uncertainty, the company halted about $10-million worth of building improvement projects. Additionally, it expects around $10-$20 million of lower tenant improvement costs and lease commissions in 2020 due to slower speculative leasing.

Quarter in Detail

Highwoods leased 893,000 square feet of second-generation office space during the first quarter including 175,000 square feet of new leases. Rents were up 6% on a cash basis.

Same-property cash NOI increased 4% year over year.

The first quarter was productive for Highwoods as the company completed the first phase of its market-rotation plan, which is aimed to fortify its portfolio in BBDs of higher-growth markets, such as Charlotte, and exit the Greensboro and Memphis markets. In the quarter, the company sold 3.6 million square feet of assets in Greensboro and Memphis for $338.4 million. The company generated non-FFO gains of $152.7 million in connection with these sales.

As of Mar 31, 2020, Highwoods had $12.7 million of cash and cash-equivalents compared with $9.5 million reported as of Dec 31, 2019. The company exited the reported quarter with total available cash balance of more than $600 million and availability of funds under its revolving credit facility, scheduled to mature in January 2022, and a net debt-to-adjusted EBITDAre ratio of 4.86. The company has no debt maturities in the next 12 months. For the remainder of 2020, Highwoods expects to fund about $133 million of its $500 million for development pipeline.

Guidance

Though the coronavirus pandemic did not leave a meaningful impact on its first-quarter results, the company expects its financials to be impacted in the remaining quarters. As a result, the company has revised its FFO per share guidance to $3.55-$3.68 from $3.60-$3.72 guided earlier.

The company updated its outlook based on some assumptions. Firstly, it expects its revenues for the remainder of the year from parking and related activities to be $3-$8 million lower than the original forecast. Nonetheless, this will be partially offset by about $3-$5 million of net operating expense savings.

The company also expects its rental revenues for the remaining year to take a hit to the tune of $2-4 million from slower speculative leasing, which in turn, is likely to be mitigated by higher renewal activity. Additionally, the company expects general and administrative expenses to be about $2 million, lower than the initial projection owing to cost-cutting measures.

The company also expects lost rental revenues from customers experiencing financial difficulties due to bankruptcies or default as well as non-cash credit losses of straight line receivables.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Highwoods Properties has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Highwoods Properties has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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