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Regional Report Triangle December 2013


Highwoods reacquires its taste for acquisitions


""Highwoods Properties Inc. went on a diet to get fit but seems to have its appetite back. The Raleigh-based real-estate investment trust’s latest dish is nearly 500,000 square feet of office space in Cary that it’s building for MetLife Inc. The New York-based insurer will move its Global Technology & Operations center there once the two buildings are complete in early 2015. The $110 million project joins a number of high-dollar portfolio additions Highwoods has recently completed or is planning.  

Founded in 1978, it went public in the mid-’90s, as did many other REITs. Wall Street put pressure on them to increase cash flow, and the easiest way to accomplish that was to gobble up properties. What transpired was “a very active pie-eating contest,” CEO Ed Fritsch says. Highwoods became bloated on ill-located, run-down properties. A year after taking over in 2004, Fritsch unveiled a plan to reshape the company. It divested its worst holdings and focused on those in the best part
of a market. “I wouldn’t say it was revolutionary,” says Jed Reagan, an analyst with Green Street Advisors. “The aim is to do better in up cycles and do better in down cycles.” The move proved prescient.
Between 2005 and 2007, as REITs bought up $464 billion of assets, Highwoods sold $741 million and added only $23.8 million. Analysts again clamored for the company to put its cash into buying or developing property, but this time it resisted. Fritsch says, “If we were getting really good pricing for assets that we thought were noncore, nondifferentiating assets, we’re getting really good numbers for those, can you imagine what the institutional-quality, trophy assets were getting?” As a result, Highwoods never had to lower its dividend during the recession. “It looked like we were prophetic in what we did, but I’ll attribute it to a dose of wisdom with a whole bunch of luck.”
Highwoods was positioned well coming out of the economic downturn. Adhering to three basic principles — sticking to urban centers but avoiding the largest real-estate markets; picking markets that historically outperform national averages in population growth, housing starts and unemployment; and staying close to the Southeast — it has recently made big moves in Nashville, Tenn., Atlanta, Pittsburgh, Tampa, Fla., and Raleigh. The idea is to satisfy its hunger with healthier fare. “It’s a well-run company with a smart and experienced management team,” Reagan says. “They’re good capital allocators and well-positioned in favorable Sun Belt markets.”       


PINEHURST — Donald Padgett II will retire as president and chief operating officer of Pinehurst Resort & Country Club in October. He joined the resort, which will host the USGA men’s and women’s U.S. Opens in June, in 2004 and will be succeeded by Executive Vice President Tom Pashley.

RALEIGH — WakeMed Health & Hospitals named Donald Gintzig interim CEO. He has been chief executive of several hospitals, including ones in Pennsylvania, Tennessee and Texas. He replaces Bill Atkinson, who stepped down in October after disagreeing with the board of directors over the health system’s direction.

Teleflex will consolidate its Durham and Research Triangle Park operations in a new building here, adding 75 workers to its 442 in the region within three years and investing $20 million. The Limerick, Pa.-based company makes single-use medical devices such as central-venous catheters.

DUNN — New Century Bank will acquire Greenville-based Select Bank & Trust in an all-stock deal valued at $31.1 million. New Century now has 14 branches in central and eastern North Carolina and adds $265.3 million to its $555 million of assets.

RALEIGH — Salix Pharmaceuticals will acquire San Diego-based Santarus, which also makes drugs for gastrointestinal problems, for $2.6 billion to increase its dominance over the category. The deal is expected to close in the first quarter of 2014.

RTI International sold its Center for Agricultural and Environmental Biosolutions to Philadelphia-based FMC for an undisclosed amount. FMC acquired the center, which conducts agricultural research, as part of its expansion into biological insecticides, herbicides and fungicides.


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