Zacks senior real estate investment trust (REIT) analyst Greg Sukenik says that now would be a good exit point from Highwoods Properties (HIW), even though the company has recently reported slight improvements:
'Higher-than-expected revenues and lower expenses caused the company to exceed our 3Q FFO estimates by $0.05 per share. Occupancies and rents are slowly increasing in many markets across the company's portfolio. The company continues to dispose of underperforming assets and redeploy the proceeds into higher yielding developments.
'That all said, we are changing our recommendation on HIW to Sell. Many of the company's Southeastern and Midwest markets are still plagued by high vacancies, which will make sustained rent growth difficult. In addition, we expect job growth to slow in the coming quarters, which will weigh on suburban office owners.
'We favor office companies with assets in high barrier, high rent growth urban markets. We think housing problems and higher energy prices will eventually weigh on the economy in the next few quarters. At 12.7x 2007 FFO estimates, Highwoods trades at about a 28% discount to office REIT peers that we cover. We would stay away from most suburban office owners for the time being, as
vacancy rates are still high, and it could turn into a buyers market in which landlords have very little pricing power.'
Read the full analyst report on HIW.
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