Highwoods Properties Stock Up 37.9% YTD: Will the Trend Last?

Core Insights - Highwoods Properties (HIW) shares have increased by 37.9% year to date, significantly outperforming the industry growth of 3.1% [1] - The company reported third-quarter 2024 funds from operations (FFO) per share of 90 cents, exceeding the Zacks Consensus Estimate of 88 cents but lower than the previous year's 93 cents [1][2] Financial Performance - The quarterly results showed strong leasing activity and rent growth, driven by rising demand for premium office spaces, although higher interest expenses had a negative impact [2] - The Zacks Consensus Estimate for HIW's 2024 FFO per share has been revised slightly upward to $3.61 over the past month [2] Market Position and Demand - Highwoods' portfolio is concentrated in high-growth Sun Belt markets, which are expected to experience above-average job growth, supporting long-term rent growth [3] - The average in-place cash rent grew by 3.9% per square foot year over year during the third quarter of 2024 [3] Leasing Activity - The company signed 906,000 square feet of second-generation leases in the third quarter, including 530,000 square feet of new leases [4] - Highwoods also signed 61,000 square feet of first-generation leases during the same period [4] Future Outlook - Future demand for office space is anticipated to be driven by inbound migration and significant investments from office occupiers in the Sun Belt regions [5] - The company has a diversified tenant base and is witnessing an increasing number of tenants returning to offices, which is expected to support market fundamentals [5] Capital Strategy - Highwoods follows a disciplined capital-recycling strategy, disposing of non-core assets and reinvesting in premium acquisitions and development projects [6] - The company completed dispositions worth $84 million from the beginning of the year through September 30, 2024, with an additional $150 million expected in 2024 [6] Financial Health - The company maintains a healthy balance sheet with no consolidated debt maturities until the second quarter of 2026, holding approximately $23.7 million in cash and $644.9 million in unused capacity under its revolving credit facility as of September 30, 2024 [7] - Highwoods generated 83.3% unencumbered net operating income (NOI) at the company's share, with investment-grade ratings from S&P and Moody's allowing access to favorable debt market rates [8]