Analysts at RBC Capital Markets downgraded Highwoods Properties from outperform to perform in a new report, saying the Raleigh real estate investment trust's core markets will recover slower and not provide as many opportunities to acquire distressed properties.
"Our now lower outlook for 2011 and 2012 earnings is predicated on a slower fundamental recovery in HIW's core Southeastern markets as well as a limited opportunity to participate in distressed asset investing due to fewer offerings in its markets," the analysts said in a report.
"A lower level of incremental leasing activity, we believe, has reduced the Company's ability to take share while a lack of commitments has slowed our expectation for HIW to capture spreads through the monetization of its development pipeline by way of new build-to-suit commitments. Finally, while we are encouraged regarding HIW's solid balance sheet, we think it will do little to fuel FFO or NAV growth in the near term."
RBC analysts reduced their 12-month price target for Highwoods stock from $38 a share to $34 a share.
Highwoods shares, up 10 percent over the last year, were at $33.34 in trading this morning.
Of the 12 analysts that cover the company, 11 now have hold ratings on the stock and one has a buy rating.
Highwoods, the largest suburban office landlord in the Southeast, reported third-quarter results late last month that met Wall Street expectations.
The company's 35 million-square-foot portfolio was 88.9 percent occupied at the end of September, up from 87.8 percent during the same period a year ago.
Highwoods recently added to major projects to its development pipeline: a proposed $57.2 million eight-story building in Kansas City for the law firm Polsinelli Shughart PC and a $11.5 million redevelopment of a 60,000 square foot office building in Atlanta that will be occupied by the U.S. Customs and Border Protection agency.
The REIT also acquired the 336,000-square-foot Crescent Center in Memphis for $52.6 million.