Cousins Beats on Both Lines

Zacks

Cousins Properties Incorporated (CUZ) – a real estate investment trust (:REIT) – reported fourth quarter 2012 core FFO (fund from operations) per share of 15 cents per share, beating the Zacks Consensus Estimate by a nickel. However, core FFO missed the year-ago figure by a cent.

For full year 2012, core FFO per share increased 7.7% year over year to 56 cents and was also well ahead of the Zacks Consensus Estimate of 47 cents. The solid performance was attributable to strong leasing activity and successful execution of other strategic initiatives.

Including certain non-recurring items, FFO stood at $14.2 million or 14 cents per share for the quarter compared with a loss of $110.2 million or $1.06 per share a year ago. For full year 2012, FFO was $66.5 million or 64 cents per share compared with a loss of $76.9 million or 74 cents per share in 2011.

Inside the Headlines

Total revenue for the fourth quarter reached $39.3 million, up from $33.6 million reported in the year-ago quarter. Moreover, total revenue substantially exceeded the Zacks Consensus Estimate of $34 million.

For the full year, the company reported total revenue of $148.3 million, substantially higher than $129.0 million generated in the previous year. Also, total revenue was marginally above the Zacks Consensus Estimate of $147 million.

Total same-store revenue increased 0.8% in fourth quarter 2012 compared with the year-earlier quarter (office up 0.5%, and retail up 2.7%), while operating expenses soared 3.4% (office up 3.0%, and retail up 7.4%). Total same-store net operating income (:NOI) in the reported quarter dipped 0.7% on a year-over-year basis (office down 1.1% and retail up 1.3%).

Operating activity

During the reported quarter, Cousins Properties executed strong leasing activities and leased 184,000 square feet of office space and 106,000 square feet of retail space.

At the quarter-end, the company’s same-store office portfolio was 91% leased, while its retail properties were 90% leased.

Acquisitions & Dispositions

During the fourth quarter 2012, Cousins Properties divested $250.8 million worth of operating assets.  This includes divesture of The Avenue Forsyth for $119.0 million; The Avenue Webb Gin for $59.6 million; and Cosmopolitan Center for $7.0 million. Also, the company divested several land parcels. This includes sale of the 615 Peachtree land parcel for $11.0 million and Terminus land parcels for $10.5 million.

For full year 2012, Cousins Properties sold $401.2 million worth in-service properties, land and other non-core assets.

The asset sale was part of the long-term strategy of the company to upgrade its overall portfolio by acquiring newer high-quality properties and divesting non-core assets.

Subsequent to the quarter-end, Cousins Properties inked several investment transactions. The company purchased 100% interest in Post Oak Central – a Class-A office complex in Houston – from institutional investors advised by J.P. Morgan Asset Management of JPMorgan Chase & Co. (JPM) for $232.6 million.

In addition, Cousins Properties purchased the residual 80% interest in Terminus 200 and consequently, formed a 50–50 joint venture (:JV) for both Terminus 100 and Terminus 200 towers in Atlanta’s Buckhead submarket. The Terminus deal included 2 Class-AA towers spanning 1.2 million square feet. Terminus 100 was valued at $209.2 million while Terminus 200 at $164.0 million.

Liquidity

At the quarter-end, Cousins Properties had cash and cash equivalents of $176.9 million.

Our Take

We are impressed with the strong quarterly results of Cousins Properties. The company’s diversified portfolio of office and retail properties, mainly located in the high-growth Sun Belt region, helps it to mitigate the operating risks associated with the economic down cycles involved in operating a single business segment.

Also, the company is currently shoring up its balance sheet and increasing liquidity by selling non-core assets. At the same time, the company remains focused on leasing activities and continues to pursue attractive investment opportunities. We expect all these factors to provide upside potential for the company going forward.

Cousins Properties currently holds a Zacks Rank #3 (Hold). REITs that are performing better and are worth a look include HCP Inc. (HCP) and Simon Property Group Inc. (SPG), both carrying a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.

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