CUZ - Cousins Properties

[thepupil]

My fellow bagholders,

 

http://investors.cousins.com/Cache/IRCache/bb838f21-6039-b111-a253-5e20bdcc53cf.PDF?O=PDF&T=&Y=&D=&FID=bb838f21-6039-b111-a253-5e20bdcc53cf&iid=102939

 

Cousins is for those of you who think NYC is on its way to looking like the movie I Am Legend, but that the more southerly of cities will rise again and that people who live in Atlanta, Austin, Charlotte, and Phoenix will go to the office.

 

Some high level stats:

 

For $5.6 billion of enterprise value ($3.6 billion market cap, $2.0 billion of mostly corporate level low-cost debt) one buys about 19mm square feet of newer office buildings in the aforementioned sunbelt cities. At a high level one is paying about $300 / foot. Sell side estimate I've seen say "replacement cost" (if that ever matters) is $400-$500 / foot; the buildings are mostly of the new, shiny and gleaming variety. 2020E NOI is $450-$500mm, for an 8%+ cap rate. Prior to it being withdrawn 2020 FFO guidance was $2.70 / share (8-9x FFO), 96% of tenants paid their April rent, the tenancy is a good mix of mostly decent quality companies. total office occupancy is 90%, 93% leased, there's a small $400mm development pipeline. Top tenants are NCR, Amazon, Bank of America, Expedia, Norfolk Southern, Apache (Nooo!), Americredit,Parsley Energy (noo!), Wells Fargo, etc. the weighted average lease term is 9 years. Please note that the 9 years stat is only their top tenants; I only noticed this in June and am editing it. Bad oversight on my part.

 

Cousins timed things very well and sold about $550mm of buildings in Q12020. Along with their low-cost and well-termed debt, the balance sheet is in as good of shape as it can be with 3.5-4.0x net debt to EBITDA, fixed charge coverage of 6x, lots of unencumbered properties. For companies I expect to experience big distress, I'd prefer the secured lending/non-recurse route, but when the leverage is low, corporate leverage is more acceptable.

 

this is for selling your decimated NYC office REITs and rotating into similar names with similar discounts-ness and better supply/demand dynamics better demographic trends. of course, if everyone is zooming forever, it will not work out.

[KJP]

Why do they favor corporate-level debt rather than builiding-level non-recourse debt?

[thepupil]

Why do they favor corporate-level debt rather than builiding-level non-recourse debt?

 

maybe "balanced" would have been a better term ~$700-$800mm of the ~$2B is mortgage debt, so it's not all corporate.

 

EDIT: there's a seeking alpha article that just came out, the summary is "it's high quality, in the cities that people are moving to and it's cheap and well-leased"

 

https://seekingalpha.com/article/4347975-cousins-properties-discount-yes-please

[thepupil]

stock up 40%, EV up 25%, fundamentals unchanged.

 

Outperformed SPY (8%), IYR (18%), BXP (22%), and PGRE/VNO (13-18%) since May 15th, attractive return on an absolute basis over the couple of weeks.

 

still "cheap" at 13x the pre-covid guidance FFO, ~6.5-7% cap rate, $370 / foot vs $400-$500/foot replacement cost, but perhaps less interesting than it was.

 

fully leased, low-leverage office is not a volatile asset class in the private market and a very volatile asset class in the public market.

 

in my opinion, fundamentals constant,one should have a different opinion with a 25% change in EV and 40% change in stock price. My time horizon is typically longer than 2 weeks, but I'll take it.

 

trimming a good bit of the shares.

 

don't want to trim winners too quickly here, but I don't think anything has changed in the past couple weeks and I think you got 1/2 - 2/3 of the upside to depending on how aggressive you want to get in a couple of weeks. I bought some in late March and then in May both in the low 20's, sold my May lot and back to the original March sized position.

[hasilp89]

Worth doing more research. I live in Charlotte. Majority of professionals I know (consulting, finance, accounting) are not going back to work in uptown offices anytime soon. Maybe the price is worth the uncertainty, but don’t think it’s as simple as ditch New York go to suburban cities.

[thepupil]

The appeal vs NYC is better demographic trends, rent growth, and affordability (note the rent per square foot of new shiny buildings of $40 being 1/2 of VNO and 1/3 of Hudson Yards/One Vandy) and better more business friendly cities.

 

In the short term, Mr Market is perhaps excited that 97% of office tenants paid their rent last month and that the top tenants are on the hook to do so for the next 9 years (I thought it was all tenants in my original post and corrected it), a mistake of reading a presentation too quickly!

 

Perhaps if he gets less giddy, Mr Market will dwell on the fact that the offices are empty right now.

 

The good and scary thing about office is the health of the lessees is unrelated to their use of space (they don’t need it to run their business as everyone is pointing out  ;D ). They are still making rent; unlike retail.

[thepupil]

https://s23.q4cdn.com/428942599/files/doc_presentations/2020/09/Investor-Presentation-SEPT20-Final.pdf

 

new presentation, not much new that i can see, 99% august office collections.

[thepupil]

low debt, leasing up space, collecting all rents...sunbelt instead of blue states...don't see anything contrary to thesis.

 

 

Highlights

• Net income per share was $0.19.

• Funds from operations per share was $0.69.

• Same property net operating income on a cash basis decreased 3.0% for the quarter and increased 2.1% for the nine months

ended September 30, 2020.

• Same property net operating income on a cash basis, adjusted for temporary rent deferrals and reduced parking income,

increased 0.3% for the quarter and increased 5.4% for the nine months ended September 30, 2020.

• Second generation net rent per square foot on a cash basis increased 8.9% for the quarter and increased 15.2% for the nine

months ended September 30, 2020.

• Executed 254,942 square feet of office leases during the quarter and 1,033,602 square feet during the nine months ended

September 30, 2020.

• Executed rent deferral agreements representing 0.1% of annualized contractual rents during the quarter and 1.2% during the nine

months ended September 30, 2020.

• Collected 98.2% of rents, including 98.7% from office customers, during the quarter; collected 98.6% of rents, including 99.1%

from office customers, in September.

• Acquired 1.7 acres of land adjacent to existing Domain properties in Austin, TX for $11 million through a 90% owned joint

venture.

• Net debt to annualized adjusted EBITDAre as of September 30, 2020 was 4.24.

• More than $1 billion of liquidity at quarter-end, representing 16.5% of total market capitalization

[thepupil]

not a bad day to trim/sell CUZ, this has made gone $42-->$22-->35/6-->25--->$34/5 this year, and with that the EV has gone from $8.5B to $5.5B to $7B to $5.5B to $7B, quite the volatility for high quality well-leased portfolio of office buildings where you don't have the whole gateway city battleground discussion happening and also in the contexts of CUZ's quite low leverage (but EV accounts for that).

 

I'll buy it back if we go back to mid $20's to high $20's, am fine not chasing to $40+.

 

one could make an argument this portfolio is worth more than pre-covid due to atlanta/austin/ etc being covid beneficiaries, but i don't quite get there.

 

 

[thepupil]

CUZ shattering records, buying a creative office / mixed use asset in charlotte for $600+ / foot

 

what's this covid 19 thing y’all are talking about?

 

i kind of love the ballsy-ness, but am also not entirely sad for no longer owning the stock.

 

https://www.bizjournals.com/charlotte/news/2020/12/02/railyard-acquired-record-amount.html

 

https://www.prnewswire.com/news-releases/cousins-properties-announces-strategic-charlotte-transactions-301185156.html

 

Cousins Properties Announces Strategic Charlotte Transactions

PR Newswire

ATLANTA, Dec. 2, 2020

ATLANTA, Dec. 2, 2020 /PRNewswire/ -- Cousins Properties (NYSE: CUZ) announced today two property transactions in the South End submarket of Charlotte, North Carolina. These transactions increase Cousins' presence in a leading Sun Belt submarket and are consistent with its long-term strategic objectives.

On November 17, 2020, Cousins closed on the purchase of 3.4 acres of land for $28.1 million. The Company anticipates developing a 600,000 to 700,000 square foot mixed-use development on the site to be called South End Station.

On December 2, 2020, Cousins closed on the purchase of a 329,000 square foot creative office asset for $201 million.  Known as The RailYard, the property was developed in 2019 and is currently 97% leased with customers including an Allstate technology center and an Ernst & Young innovation center.

"The RailYard and South End Station are both attractive acquisitions with significant long-term value creation opportunities," said Colin Connolly, President and Chief Executive Officer of Cousins.  "Collectively, the investments create an advantageous concentration with compelling synergies in one of the best submarkets in the Sun Belt."

Please refer to the Investor Relations page of Cousins' website for a presentation with additional information on the transactions discussed above.

About Cousins Properties

Cousins Properties is a fully integrated, self-administered and self-managed real estate investment trust (REIT). The Company, based in Atlanta, GA and acting through its operating partnership, Cousins Properties LP, primarily invests in Class A office buildings located in high growth Sun Belt markets. Founded in 1958, Cousins creates shareholder value through its extensive expertise in the development, acquisition, leasing, and management of high-quality real estate assets. The Company has a comprehensive strategy in place based on a simple platform, trophy assets, and opportunistic investments. For more information, please visit www.cousins.com.