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Cousins Properties (CUZ) Misses on Q1 FFO, Revenues Fall

Cousins Properties Inc. CUZ reported first-quarter 2016 funds from operations (“FFO”) of 21 cents per share, missing the Zacks Consensus Estimate by a penny and flat year over year. Results reflected a decline in rental property revenues.

Quarter in Detail

During the quarter, rental property revenues came in at $88.5 million, down 1.7% year over year. Moreover, the figure lagged the Zacks Consensus Estimate of $93 million.

Cousins Properties leased or renewed 220,232 square feet of office space in the quarter. Same property net operating income ("NOI"), on cash basis, rose 8.6% year over year. Moreover, second generation net rent per square foot (cash basis) moved 6.3% north.

During the quarter, the company sold 100 North Point Center East, which is a 129,000-square foot office building in Atlanta, GA, for $22.0 million. On the other hand, the company started the development of 8000 Avalon, a 224,000-square foot office building in Atlanta, GA.

During the quarter, the company repurchased 1.6 million shares of common stock for a total of $13.7 million. This brought the total share buyback to 6.8 million shares for $61.5 million under its Sep 2015 share repurchase program which authorizes up to $100 million in share repurchases over the next two years.

Finally, Cousins Properties exited the quarter with cash and cash equivalents of $5.5 million, up from $2.0 million at the end of the prior year.

2016 Outlook

Cousins Properties has withdrawn its 2016 FFO guidance taking into consideration the recent announcement regarding the signed definitive merger and spin-off agreement. The company expects to issue the 2017 FFO outlook after the completion of the deal.

Notably, on Apr 29, Cousins Properties and Parkway Properties, Inc. PKY disclosed a definitive agreement for a stock-for-stock merger and the simultaneous spin-off of the Houston-based assets of both companies into a new publicly traded REIT. As a result, Cousins Properties is set to emerge as a premier Sun Belt urban office REIT with a class A office portfolio.

Our Take

While we are encouraged with the definitive deal with Parkway Properties, we are disappointed with a lower-than-expected performance of Cousins Properties in the first quarter. In fact, the lag in revenues clearly remains a concern. Moreover, a moderate pace of growth amid new supply in the office market is exerting pressure on rent and occupancies.

Cousins Properties currently carries a Zacks Rank #4 (Sell). Investors interested in the REIT industry may consider stocks like CoreSite Realty Corporation COR and Public Storage PSA. Both these stocks carry 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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PUBLIC STORAGE (PSA): Free Stock Analysis Report
COUSIN PROP INC (CUZ): Free Stock Analysis Report
PARKWAY PPTY (PKY): Free Stock Analysis Report
CORESITE REALTY (COR): Free Stock Analysis Report
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