Cousins Properties Focuses on Trophy Assets: Worth a Hold?

We have updated our research report on Cousins Properties Incorporated CUZ on Feb 29, 2016.

This Atlanta, GA-based real estate investment trust (“REIT”) boasts a diversified portfolio with a wide array of product types. Also, it makes consistent efforts to create a stronger platform with trophy assets in high-barrier-to-entry submarkets in Austin, Dallas, Houston, Atlanta and Charlotte. The company believes that these markets will continue to show positive demographic and economic trends compared with the national average. Also, in order to fund investment activities, the company divests its non-core assets. We expect such portfolio restructuring measures to drive its top line.

Further, Cousins Properties focuses on maintaining a flexible balance sheet with ample liquidity to leverage improving market fundamentals and raise operational efficiency. This financial flexibility augurs well for the company’s long-term growth.

However, Cousins Properties’ strategy to dispose non-core assets and focus more on premium office assets in the core markets has earnings dilutive effects. Notably, in 2015, 2014 and 2013, the company disposed of around $250 million, $260 million and $138.2 million in non-core assets, respectively. Further, intense competition, high dependence on office portfolio and any rise in interest rate pose concerns for Cousins Properties.

The company reported fourth-quarter and full-year 2015 earnings on Feb 10, 2016. It recorded fourth-quarter 2015 funds from operation (“FFO”) of 23 cents per share, beating the Zacks Consensus Estimate by 2 cents. Results were aided by growth in same property net operating income (“NOI”).

Cousins Properties currently has a Zacks Rank #3 (Hold).

Investors interested in other REIT stocks, may consider CorEnergy Infrastructure Trust, Inc. CORR, Lamar Advertising Co. LAMR and CoreSite Realty Corporation COR. While both CorEnergy Infrastructure Trust and Lamar Advertising sport a Zacks Rank #1 (Strong Buy), CoreSite Realty holds a Zacks Rank #2 (Buy).

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

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