Higher Revenues Drive Cousins' Q4 FFO

Zacks

Cousins Properties Incorporated (CUZ) reported a positive earnings surprise of 12.5% in fourth-quarter 2013, thanks to a more than a double raise in total revenues in the quarter.

In particular, this real estate investment trust (:REIT) reported fourth-quarter 2013 funds from operations (:FFO) per share of 18 cents, beating the Zacks Consensus Estimate by 2 cents and year-ago figure by 4 cents. Total revenues for the quarter witnessed a significant year-over-year increase to $79.5 million from $36.3 million and also substantially exceeded the Zacks Consensus Estimate of $61 million.

However, for full-year 2013, Cousins Properties’ FFO came in at 53 cents, which was lower than 64 cents in 2012 due to higher cost and expenses. Nevertheless, total revenues jumped 54% year over year to $210.7 million from $136.8 million in 2012.

Quarter in Detail

Total same property revenue increased 4.3% year over year to $26.2 million in fourth-quarter 2013, while total same property operating expense upped 5.0% year over year to $11.0 million. As a result, total same property net operating income (:NOI) escalated 3.7% year over year to $15.2 million.

In the reported quarter, Cousins Properties inked new or renewal leases for 442,000 square feet of office and retail space. As of Dec 31, 2013, same property weighted average occupancy climbed 140 basis points to 90.4% from 89.0% in the prior-year quarter.

Portfolio Restructuring Activity in Q4

In the reported quarter, Cousins Properties divested Inhibitex office building for $8.3 million (before allocation of free rent credits) and reaped profits of $3.0 million. Moreover, the company started construction of Emory Point Phase II that will comprise 307 apartments and 43,000 square feet of retail space, for a total projected cost of $73.3 million.

Liquidity

At year end 2013, Cousins Properties had cash and cash equivalents of $0.98 million, substantially down from $176.9 million as the end of 2012.

During the quarter, the company obtained a construction loan on Emory Point Phase II. The loan, having a term of 3 years with two one-year extension options, will grant up to $46.0 million at LIBOR plus 1.85% floating rate.

Our Take

We are encouraged with Cousins Properties’ fourth-quarter performance on the back of strong operating portfolio performance. Notably, excluding fourth-quarter 2013, the company has a trailing four quarters earnings surprise of 12.69%. The company’s portfolio is primarily concentrated in the high-growth Sun Belt markets, which due to their long-term demographic trends, is expected to exhibit above-average job growth. Its focus on building its business on a simpler platform, by specifically targeting trophy assets and opportunistic investments, ensures a steady revenue stream.

As a matter of fact, blessed by the successful implementation of its’ strategic plan over the recent years, Cousins Properties decided to reward the stockholders. Accordingly, the company hiked its first-quarter cash dividend by 67% sequentially to 7.5 cents per share in Jan 2014. This boosts investor’s confidence in the stock.

Cousins Properties currently has a Zacks Rank #3 (Hold). Investors interested in the REIT-Equity Trust – Other industry may consider stocks like Highwoods Properties Inc. (HIW), PS Business Parks Inc. (PSB) and Ventas Inc. (VTR). All these stocks carry 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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