Cousins Properties Incorporated (CUZ) – a real estate investment trust (REIT) – reported third-quarter 2013 funds from operations (FFO) per share of 11 cents, beating the Zacks Consensus Estimate by a penny. However, it came substantially below the year-ago figure of 25 cents due to a significant rise in total costs and expenses in the quarter.
However, total revenue for the quarter jumped 32.6% year over year to $52.1 million. Furthermore, total revenue substantially exceeded the Zacks Consensus Estimate of $42 million.
Behind the Headlines
Total same property revenue increased 4.0% year over year to $26.5 million in third-quarter 2013, while total same property operating expense upped 3.2% year over year to $11.3 million. As a result, total same property net operating income (NOI) escalated 4.5% year over year to $15.2 million.
In the reported quarter, Cousins Properties inked new or renewal leases for 338,000 square feet of space. As of Sep 30, 2013, same property weighted average occupancy upped 200 basis points to 90% from 88% in the prior-year quarter.
Portfolio Restructuring Activity
In the reported quarter, Cousins Properties completed the acquisition of a Texas office portfolio for $1.1 billion. The portfolio – comprising Greenway Plaza (Houston) and 777 Main Street (Fort Worth) – was bought from Crescent Real Estate Holdings LLC.
Moreover, the company divested a retail asset – Tiffany Springs MarketCenter – for $53.5 million. Also, Cousins Properties offloaded its stake in CF Murfreesboro Associates for $82.0 million (before property level debt allocation). In addition, the company disclosed the shedding of its interest in CP Venture Two LLC and CP Venture Five LLC for $57.4 million (before the allocation of property level debt). Notably, the company has disposed the majority of its remaining retail assets in the quarter.
Subsequent to quarter-end, Cousins Properties formed an unconsolidated joint venture named ‘EP II LLC’ for constructing and operating the 2nd phase of the mixed-use property – Emory Point – in Atlanta, Ga. for $73.3 million.
Liquidity
At quarter end, Cousins Properties had cash and cash equivalents of $5.4 million, up from $4.9 million as of Jun 30, 2013.
During the quarter, the company completed an equity offering of 69 million common shares at $10.00 per share and reaped net proceeds of $661.3 million.
Also, during the quarter, Cousins Properties disclosed the closure of 2 mortgages. Generating around $303 million in total proceeds, the mortgages, in particular, included The Post Oak Central non-recourse mortgage ($188.8 million with a 7-year term and a fixed rate of 4.26%) and The Promenade non-recourse mortgage ($114 million with a 9-year term and a fixed rate of 4.27%).
Our Viewpoint
Though higher costs and expenses offset the quarterly FFO of Cousins Properties, the increase in revenues and occupancy and leasing gains provided some relief. Notably, Cousins Properties’ focus on building its business on a simpler platform, by specifically targeting trophy assets and opportunistic investments, ensures a steady revenue stream. The Texas-portfolio acquisition, which is the largest in the company’s history, is noteworthy. These activities promise strong upside potential for this Zacks Rank #3 (Hold) stock, going forward.
REITs that are performing better include DiamondRock Hospitality Co. (DRH), DuPont Fabros Technology, Inc. (DFT) and Douglas Emmett Inc (DEI). 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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