The Premier Urban Sun Belt Office REIT: 2016 – 2017
Heading into 2016, Cousins was well-positioned with a solid portfolio of trophy office assets, an industry-leading balance sheet, and a best-in-class development platform. While management remained optimistic about the future, Cousins’ share price suffered due to challenges posed by macroeconomic events, specifically the significant decline in energy prices. At this time, 42% of Cousins’ NOI was generated by the Company’s Houston office assets. Even though the Houston portfolio was stable at 91 percent leased with a strong tenant credit profile, the market reacted to Cousins’ exposure.
At the same time, Parkway Properties, another Sun Belt office REIT with Houston exposure, was experiencing similar challenges. Both companies had entertained a potential merger off and on for a couple of years, but now, the time had come. In April of 2016, Cousins and Parkway announced a stock-for-stock merger and simultaneous spin-off of the Houston assets of both companies into a new publicly traded REIT (Parkway, Inc.). The reshuffling of the two companies resulted in a larger Cousins, led by its current management team with an urban office portfolio located in Atlanta, Austin, Charlotte, Orlando, Phoenix, and Tampa. The Houston assets of both companies would belong to Parkway, Inc., led by the previous Parkway Properties management team.
The deal was overwhelmingly approved by the shareholders of both companies, and the transactions closed in October of 2016. Cousins and its shareholders were rewarded for these elegantly crafted and well-executed transactions through strong share price performance. Specifically, total shareholder return in 2016 for Cousins was 28.39% while total returns in 2016 for the SNL US Office REIT Index and the S&P 500 were 11.59% and 11.96%, respectively.
While 2016 is seen as perhaps the most pivotal point in Cousins’ long history, the accomplishments of the year that followed elevated and differentiated the company from its non-gateway office peers. During 2017, Cousins revisited its 2011 strategy of simple platform, trophy assets and opportunistic investments with a specific focus on Sun Belt markets. As a result of this exercise, the company sold $607 million in non-core assets and land, exiting the Orlando and Miami office markets. The development pipeline also continued to provide significant value with the opening of two development projects in Atlanta and Chapel Hill and the start of two additional projects in Atlanta and Charlotte. Finally, the Cousins team significantly reduced leverage, which had been slightly elevated due to the merger, and once again was positioned with one of the best balance sheets in the REIT space.