Cousins Properties acquisitions in Texas, stock buy-back at $25 a share, show how one company fights back
By David Pendered
Cousins Properties, Inc. raised $165.1 million in a stock sale April 12 that shows how one Atlanta-based real estate firm is waging its fight back from the recession.
Cousins intends to use the money from the stock sale to further its expansion into urban markets in Texas. Cousins also plans to redeem $74.8 million of preferred stock, according to Cousins filings with the Securities and Exchange Commission.
Cousins, a real estate investment trust, was formed in Atlanta in 1958 and more than two-thirds of its office holdings remain in Atlanta – 5.3 million square feet of the 7.6 million square feet of office space cited in its 2012 annual SEC filing. The remainder of the office space is located in Charlotte, Dallas, and Birmingham.
The company’s leadership has decided to broaden its holdings elsewhere – mainly in Texas, so far – and reduce its exposure in Atlanta.
Even at that, 56 percent of Cousins net operating income during the final quarter of 2012 came from four properties in Atlanta: Terminus 100, 191 Peachtree Tower, the American Cancer Society Center and Prominade, according to the 2012 report.
The company is moving to change that income ratio, according to the annual report:
- “Subsequent to year end, the company reduced its exposure to the Atlanta, Georgia market by selling 50 percent of Terminus 100 and acquiring Post Oak Central in Houston, Texas. Even with this reduced exposure, any adverse economic conditions impacting the Atlanta area generally, or in its Downtown, Midtown or Buckhead submarkets specifically, could adversely affect the operations of one or all of these properties which, in turn, could adversely affect our overall results of operations and financial condition.”
Cousins’ stock value was clobbered by the recession and lingering downturn in the economy. Cousins share price fell from $40.75 in February 2007 to $5.25 in October 2011, according to morningstar.com. Shares closed April 12 at $10.68, down from a high of $10.87.
The Series A of stocks that Cousins intends to buy back involves 2.99 million shares and is redeemable at $25 a share, plus all accrued and unpaid dividends. The interest is 7.75 percent. The stocks were eligible for redemption in July 2008, according to the company’s annual report.
The Texas investments include the purchase in 2012 of the 2100 Ross Avenue building, in Dallas. Cousins bought the building out of foreclosure for a net purchase price of $59.2 million, or $70 a foot. The 844,000-square-foot building was 67 percent leased, according to a statement Cousins released at the time.
To date this year, Cousins has added a 1.3 million square foot office complex in Houston’s Galleria district. The price was $232.6 million, according to SEC filings, or $182 a square foot. The building is 92 percent leased.
With proceeds of last week’s stock sale, Cousins plans to close this month on the 816 Congress Ave. building in Austin. The price is $103.5 million, with the net price after various credits and other provisions set at $101.5 million, according to an SEC filing.
The acquisition also furthers Cousins plan to expand its footprint in urban cores. The building received a score of 100, out of 100, on a walkability rating by walkscore.com. Factors include proximity to grocery stores, coffee houses, restaurants and bars, and other amenities.
The 20-story structure is 78 percent leased. Three major tenants account for 26 percent of the leased space: Teacher Retirement System of Texas; the law firm of Lloyd Gosselink Rochelle & Townsend, P.C.; and the United States Attorney’s office, according to the SEC filing.
An earnest payment of $4 million is non-refundable, according to the filing.
Cousins hopes the acquisition will position the company ride the hoped-for rise in the economy:
- “We believe the property provides a number of value creation opportunities, including the lease up of remaining vacant space, rolling of expiring leases to more favorable market rents and leveraging recent capital improvements at the property.”
The improvement evidently is a $3 million upgrade that provided an outdoor terrace and adjoining executive lounge on the 15th floor, according to a 2012 report about the construction project published in the Austin Business Journal.