Office REIT Highwoods Enjoying Steady Growth

Ed Fritsch, president and CEO of Highwoods Properties Inc. (NYSE: HIW), joined REIT.com for a CEO Spotlight video interview during REITWeek 2015: NAREIT’s Investor Forum, held in New York.

Fritsch, who's currently serving as NAREIT's second vice chair, said fundamentals in Highwoods’ geographic markets are strong, although he pointed out that growth is measured. He described the market absorption of office space as “steady.”

Fritsch also noted that the Southern markets in which Highwoods operates are showing positive demographic trends. For example, GDP growth in that region of the country is projected to outpace the national rate in 2015. Additionally, population growth in the Southeast is projected to top the national average by approximately 35 percent in the next three years.

“It’s a good time to be doing what we’re doing,” he commented. “It’s important to say that things aren’t robust. Things aren’t ramping up at an incline that makes you leery of the inevitable bursting of the bubble. It has just been a very nice cadence as we’ve come out of this recession.”

Fritsch also noted that the cost of living in the South remains attractive.

Regarding Highwoods’ prospects for growth through acquisitions, despite pricy valuations, the company has said it intends to continue evaluating deals. Those include potential deals in Highwoods’ existing markets and those in adjoining areas, too, according to Fritsch.

“Things are rich, but that doesn’t mean that we shouldn’t be in the hunt,” he said. Importantly, Fritsch said the company won’t buy assets that require “perfection” in the underwriting process.

On the flip side, Highwoods has steadily divested assets in the last 10 years, leading to what Fritsch described as a transformation of the firm’s portfolio. The company has sold off “non-core” assets during that period, Fritsch said, but he emphasized that it hasn’t made sales specifically to satisfy debt obligations or to deploy for development or acquisitions. Sales have occurred strictly on a “strategic” basis, according to Fritsch.