CUZ Cousins Properties Inc

We reiterate 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 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 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 their long-term demographic trends, should exhibit above-average growth in the coming quarters.

Cousins Properties is currently shoring up its balance sheet and increasing its liquidity by selling non-core assets. At the same time, the company remains focused on leasing activities and intends to maintain steady occupancy levels across its portfolio.

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 generates 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 cut 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 compared to pre-recession levels. This has negatively affected the industrial properties segment of Cousins Properties.

Cousins Properties presently has 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.

 
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