Cousins Properties Stays Neutral - Analyst Blog
August 26 2011 - 10:15AM
Zacks
We maintain our ‘Neutral’ rating on
Cousins Properties Inc. (CUZ), a Georgia-based
real estate investment trust (REIT) engaged in the acquisition,
financing, development, management, and leasing of office, retail
and industrial properties throughout the U.S.
Cousins Properties has a diversified
portfolio with a broad array of product types – office, retail,
urban residential and single-family communities that mitigates
operating risks associated with the economic down cycles. In 2008,
Cousins Properties reorganized its business according to the
functional lines and eliminated its division structure, which was
primarily based on product types.
Under its new structure, the company
has five reportable segments: Office, Retail, Land, Third-Party
Management and Multi-Family. The Office and Retail segments
comprise operations of both consolidated and joint venture office
and retail properties, respectively. The Land segment primarily
includes operations for land held for future development. The
Third-Party Management segment includes projects where the company
manages, leases and develops properties for third-parties. The
Multi-Family segment includes operations for the development and
sale of multi-family real estate.
The well spread-out product
portfolio has ensured a relatively steady source of revenue
generation for Cousins Properties over the years. Furthermore, the
portfolio is primarily concentrated in high-growth Sun Belt
markets, which due to its long-term demographic trends, should
exhibit above-average growth in the coming quarters. This provides
an upside potential for the company. In addition, Cousins
Properties maintains a conservative and flexible balance sheet with
ample liquidity and minimal debt maturities that enable it to
capitalize on potential acquisition opportunities to fuel its
long-term growth.
However, Cousins Properties has a
large development pipeline, which increases operational risks in
the current credit-constrained market, exposing it to rising
construction costs, entitlement delays and lease-up risk. Besides,
Cousins Properties generate a significant amount of revenue from
its office portfolio. With fears of a double-dip recession looming
large, operations in the company’s office portfolio is likely to
suffer as most companies shelve expansion plans and trim jobs. This
could adversely affect the top-line growth of the company.
The continued troubles in the
residential sector are also weighing on commercial property
operations. The credit crunch has widened the bid-ask spread
between buyers and sellers of commercial real estate, which in turn
has caused deal volumes to fall dramatically. This has negatively
affected the industrial properties segment of Cousins
Properties.
Cousins Properties currently retains
a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We
also have a ‘Neutral’ rating and a Zacks #3 Rank for Duke
Realty Corp. (DRE), one of the competitors of Cousins
Properties.
COUSIN PROP INC (CUZ): Free Stock Analysis Report
DUKE REALTY CP (DRE): Free Stock Analysis Report
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