Return to Core Strengths: 2009–2015
As the Great Recession wore on, Cousins adopted a realignment of its strategy and a return to its core strengths, beginning with a change in leadership. In July 2009, Larry Gellerstedt became President and Chief Executive Officer and brought renewed energy and focus to Cousins. The Company’s priorities were clearly stated: continue to strengthen the balance sheet; operate efficiently; focus on core operations that drive revenues and profitability; monetize non-core assets prudently; and invest capital with discipline and strategic timing.
The first order of business under the new leadership was a readjustment to the Company’s balance sheet, beginning with a successful follow-on equity issuance which raised $318 million in new capital, improved liquidity and decreased overall leverage from 67% to 45%. The Company also elected to reduce the annualized dividend, paying it two-thirds in stock and one-third in cash and commenced the sales of non-core assets in order to further de-leverage the Company.
Cousins’ next move was to reveal an adjusted strategy: focusing on the investment and management of high-quality, well-located office properties in its core markets of Georgia, Texas and North Carolina, with a long-term strategy that included recycling of capital not invested in its core markets, selling its industrial and retail assets, liquidating its remaining for-sale multi-family residential unit inventory and reducing its holdings of undeveloped land and residential lots. Additionally, the Company indicated that it would pursue geographic diversification of its holding to reduce the level of concentration in Atlanta, Georgia and that it expected to maintain leverage near then-current levels despite its recycling efforts.
During this period, Cousins sold over $2.1 billion in non-core assets, and in 2012, the Company also sold its third party leasing and property management services business, for gross proceeds of $15.4 million. The capital resulting from these dispositions, along with four successful equity issuances and multiple strategic property-level debt transactions, gave the Company the ability to reinvest in office projects that were in line with the new strategy.
From 2009 to 2014, Cousins acquired $2.4 billion of trophy assets at an average discount of 60% to replacement cost. The Company’s most notable move during this period was the acquisition of Crescent’s Texas portfolio in 2013 which marked Cousins’ entry into the Houston market. The Crescent portfolio included 5.6 million square feet of Class A office assets in key urban infill submarkets in Houston.
GREENWAY PLAZA, acquired in September 2013 as part of a transformative $1.1 billion transaction, this Houston project includes 10 buildings and more than 4.3 million square feet.
Cousins also returned to development, and from 2011 to 2015, the Company commenced $636 million in new projects. Colorado Tower, a 373,000 square foot office building in Austin, Texas, provides an excellent example of the value Cousins created through development during this period. With over 15 years of on the ground experience in Austin, the Cousins team was able to identify a development pad in one of the city’s highest demand, supply constrained markets. The Company broke ground on the project in 2013 only 17% pre-leased due to the local team’s strong conviction that significant demand would emerge from customers outside of Austin. The office tower was completed in January of 2015 95% leased and by year end 2015 was 100% leased.
This strategy required significant focus and execution, and by the end of 2015, Cousins efforts at repositioning were coming to fruition. In early 2009, the Company’s equity market capitalization was $422 million, leverage was high at 72%, and only 43% of Net Operating Income was coming from urban trophy office buildings. By the end of 2015, the Company’s equity market capitalization was $2 billion, debt to total market capitalization was 32%, and 89% of Net Operating Income was coming from urban trophy office buildings.
At the end of this era, Cousins emerged with a solid and simple strategy proven to succeed: owning the best assets in the strongest urban submarkets in the Sun Belt; providing operational excellence throughout the portfolio; maintaining a rock-solid balance sheet and a talented team to take advantage of positive market and economic fundamentals to grow where and when it makes sense.