Cousins Properties’ CUZ portfolio of class A office assets is concentrated in the high-growth markets in the Sun Belt region. The company is witnessing higher leasing activity growing out of tenants’ preference for premium office spaces with class-apart amenities. Its capital-recycling efforts and healthy balance sheet augur well.
Later in July 2024, CUZ reported second-quarter 2024 funds from operations (FFO) per share of 68 cents, which beat the Zacks Consensus Estimate of 66 cents. Results reflected decent leasing activity and better-than-anticipated revenues. CUZ also raised its 2024 outlook for FFO per share.
Over the past six months, shares of this Atlanta, GA-based office real estate investment trust (REIT) have risen 21.7% compared with the industry's upside of 10.3%. Given the strength of its fundamentals, there seems to be additional room for growth in this stock.
Analysts seem bullish on this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for its 2024 FFO per share has been raised marginally over the past month to $2.66.
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Factors That Make Cousins Properties a Solid Pick
Rebounding Leasing Activity in Sun Belt Region: Cousins Properties is witnessing healthy leasing demand for its highly amenitized and strategically located office properties, as reflected by the rebound in new leasing volume. For the six months ended June 2024, it executed 77 leases for a total of 794,240 square feet of office space with a weighted average lease term of 7.8 years. This included 404,011 square feet of new leases, 268,210 square feet of renewal leases and 122,019 square feet of expansion leases. The company’s lease expirations through 2026 are among the lowest in the office sector.
Going forward, the next cycle of office space demand is likely to be driven by an inbound migration and significant investments announced by office occupiers to expand the footprint in the Sun Belt regions. Hence, Cousins Properties’ leading trophy portfolio of class A and highly amenitized office real estate across the Sun Belt region is well-positioned to benefit from the emerging trend.
Further, several tenants are returning to offices or announcing plans to report to workplaces. This is likely to support office market fundamentals in its markets.
Properties in these markets are also expected to command higher rents compared with the broader market. Per the company’s June 2024 Investor Presentation, CUZ witnessed a 39% increase in in-place gross rents from the first quarter of 2017 to the second quarter of 2024.
Solid Tenant Base: The company enjoys a well-diversified, high-end tenant roster with less dependence on a single industry. This enables it to generate stable rental revenues over time.
Capital-Recycling Efforts: Cousins Properties’ capital-recycling moves to enhance its portfolio quality with trophy asset acquisitions and opportunistic developments in high-growth Sun Belt submarkets seem encouraging for long-term growth. It makes strategic dispositions for a better portfolio mix.
In August 2024, Cousins Properties acquired Proscenium, a 526,000-square-foot Class A office building in the Midtown submarket of Atlanta, GA, in a joint venture with Town Lane for around $83 million. The joint venture is 80% owned by Town Lane, and the remaining 20% is held by Cousin Properties’. CUZ will head the overall management of the property.
During the pandemic, the company recycled more than $1 billion of older assets, helping it shed the slow-growth assets from its portfolio and redeploy the proceeds for developing and acquiring highly differentiated amenitized properties in the Sun Belt submarkets.
In addition, its encouraging development pipeline is likely to deliver meaningful additional annualized net operating income in the upcoming years.
Balance Sheet Strength: Cousins Properties maintains a healthy balance sheet position and exited the second quarter of 2024 with cash and cash equivalents of $5.95 million. As of the same date, it had $317.1 million drawn under its $1 billion credit facility. With considerable liquidity and access to capital markets, the company seems well-placed to bank on long-term growth opportunities.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Lamar Advertising LAMR and Crown Castle Inc. CCI, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share has moved marginally northward in the past month to $8.08.
The Zacks Consensus Estimate for Crown Castle Inc.’s ongoing year’s FFO per share has increased marginally over the past month to $6.97.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.
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