Cousins Reports a Mixed bag

Zacks

Cousins Properties Incorporated (CUZ) – a real estate investment trust (:REIT) – reported first-quarter 2013 FFO (fund from operations) per share of 11 cents per share, missing the Zacks Consensus Estimate by a penny. Moreover, it compared unfavorably with the year-ago figure of 13 cents. A rise in expenses – headed mainly by mounting property operating expenses and reimbursed expenses – acted as a dampener.

However, total revenue for the first quarter jumped 19.1% to $41.3 million from $34.7 million reported in the year-ago period. Furthermore, total revenue comfortably exceeded the Zacks Consensus Estimate of $37 million.

Inside the Headlines

Total same-store revenues increased 4.8% in first-quarter 2013 compared with the year-earlier quarter (office up 5.1%, and retail up 3.3%), while operating expenses escalated 4.3% (office up 4.9%, and retail remained flat). As a result, total same-store net operating income (:NOI) upped 5.0% on a year-over-year basis (office up 5.2% and retail up 4.5%).

In the reported quarter, Cousins Properties executed strong leasing activities and leased 527,000 square feet of office and retail space. At the quarter-end, the company’s same-store office and retail portfolios were 90% leased – up 300 basis points  from 87% in year-earlier quarter.

Acquisitions & Dispositions

In the reported quarter, Cousins Properties 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 $230.9 million (after adjusting for rent credits).

Additionally, Cousins Properties purchased the residual 80% interest in Terminus 200 from a fund managed by Morgan Stanley Real Estate Investing (:MSREI) of Morgan Stanley (MS). The company also formed a 50–50 joint venture with institutional investors advised by J.P. Morgan Asset Management for both Terminus 100 and Terminus 200 towers in Atlanta’s Buckhead submarket. Terminus 100 was valued at $209.2 million while Terminus 200 at $164.0 million.

Liquidity

At the first quarter-end, Cousins Properties had cash and cash equivalents of $6.0 million, compared with $176.9 million as of Dec 31, 2012.

Our Viewpoint

Though Cousins Properties reported mixed results in the first quarter, we believe that the company’s diversified portfolio located in the high-growth Sun Belt region would help it to mitigate operating risks associated with the economic down cycles. The company also remained 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 include CubeSmart (CUBE), which carries 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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