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Should You Retain Cousins Properties (CUZ) Stock for Now?
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Cousins Properties’ (CUZ - Free Report) portfolio of class A office assets, concentrated in the high-growth markets in the Sun Belt region, positions it well to ride the growth curve. Its capital-recycling efforts and a robust balance sheet bode well. However, competition from other industry players is expected to adversely impact Cousins Properties’ pricing power. High supply in the office real estate market and high interest rates add to its woes.
What’s Aiding CUZ?
With the steady return of the workforce to offices, Cousins Properties has been witnessing a recovery in demand for its high-quality, well-placed office properties, as evidenced by the rebound in the new leasing volume.
In 2023, Cousins Properties executed 140 leases for a total of 1.69 million square feet of office space, with a weighted average term of 7.5 years. This included 691,987 square feet of new leases, 812,096 square feet of renewal leases and 189,834 square feet of new and expansion leases.
Given the favorable migration trends and a pro-business environment, corporate relocations and expansions in the Sun Belt markets are likely to continue in the region, boosting demand for CUZ’s properties in the quarters ahead.
Moreover, the company has a well-diversified, high-end tenant roster with less dependence on a single industry. This enables it to enjoy steady revenues over different economic cycles. Although for 2024, we estimate the company’s rental property revenues to exhibit year-over-year growth of 2.4%, the metric is projected to increase 4.1% and 5.3% in 2025 and 2026, respectively.
Cousins Properties’ capital-recycling moves to enhance its portfolio quality with trophy assets’ acquisitions and opportunistic developments in high-growth Sun Belt submarkets seem encouraging for long-term growth. It also makes strategic dispositions for a better portfolio mix.
During the pandemic, the company recycled more than a billion worth of older assets, helping it to 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.
CUZ maintains a robust balance sheet position and exited 2023 with cash and cash equivalents of $6.0 million. As of Dec 31, 2023, it had a borrowing capacity of $814.9 million under its $1 billion credit facility. With limited near-term debt maturities and ample financial flexibility, the company is well-positioned to capitalize on future growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders and CUZ has remained committed to that. The company has increased its dividend four times in the last five years. The five-year annualized dividend growth rate is 11%. Given the company’s strong financial position, its dividend payment is likely to be sustainable in the upcoming period. Check Cousins Properties’ dividend history here.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have gained 19.3% compared with the industry's upside of 13.9%.
Image Source: Zacks Investment Research
What’s Hurting CUZ?
Competition from developers, owners and operators of office properties and other commercial real estate is likely to limit Cousins Properties’ ability to retain tenants at relatively higher rents and dent its pricing power.
Moreover, an anticipated rise in construction activity is poised to augment the supply of new Class A office space in the company's market. Given the competitive landscape, it may become increasingly challenging for it to backfill near-term tenant move-outs, resulting in lesser scope for rent and occupancy growth. Further, given the persistent macroeconomic uncertainties, it is expected that near-term demand for office spaces will remain choppy.
A high interest rate environment is a concern for Cousins Properties. The company may find it difficult to purchase or develop real estate as borrowing costs will likely be on the higher side due to elevated rates. Moreover, the dividend payout may become less attractive than the yields on fixed-income and money market accounts.
The Zacks Consensus Estimate for LAMR’s 2024 funds from operations (FFO) per share has been raised marginally northward over the past two months to $7.74.
The consensus estimate for WELL’s current-year FFO per share has moved marginally upward over the past month to $4.03.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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Should You Retain Cousins Properties (CUZ) Stock for Now?
Cousins Properties’ (CUZ - Free Report) portfolio of class A office assets, concentrated in the high-growth markets in the Sun Belt region, positions it well to ride the growth curve. Its capital-recycling efforts and a robust balance sheet bode well. However, competition from other industry players is expected to adversely impact Cousins Properties’ pricing power. High supply in the office real estate market and high interest rates add to its woes.
What’s Aiding CUZ?
With the steady return of the workforce to offices, Cousins Properties has been witnessing a recovery in demand for its high-quality, well-placed office properties, as evidenced by the rebound in the new leasing volume.
In 2023, Cousins Properties executed 140 leases for a total of 1.69 million square feet of office space, with a weighted average term of 7.5 years. This included 691,987 square feet of new leases, 812,096 square feet of renewal leases and 189,834 square feet of new and expansion leases.
Given the favorable migration trends and a pro-business environment, corporate relocations and expansions in the Sun Belt markets are likely to continue in the region, boosting demand for CUZ’s properties in the quarters ahead.
Moreover, the company has a well-diversified, high-end tenant roster with less dependence on a single industry. This enables it to enjoy steady revenues over different economic cycles. Although for 2024, we estimate the company’s rental property revenues to exhibit year-over-year growth of 2.4%, the metric is projected to increase 4.1% and 5.3% in 2025 and 2026, respectively.
Cousins Properties’ capital-recycling moves to enhance its portfolio quality with trophy assets’ acquisitions and opportunistic developments in high-growth Sun Belt submarkets seem encouraging for long-term growth. It also makes strategic dispositions for a better portfolio mix.
During the pandemic, the company recycled more than a billion worth of older assets, helping it to 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.
CUZ maintains a robust balance sheet position and exited 2023 with cash and cash equivalents of $6.0 million. As of Dec 31, 2023, it had a borrowing capacity of $814.9 million under its $1 billion credit facility. With limited near-term debt maturities and ample financial flexibility, the company is well-positioned to capitalize on future growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders and CUZ has remained committed to that. The company has increased its dividend four times in the last five years. The five-year annualized dividend growth rate is 11%. Given the company’s strong financial position, its dividend payment is likely to be sustainable in the upcoming period. Check Cousins Properties’ dividend history here.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have gained 19.3% compared with the industry's upside of 13.9%.
Image Source: Zacks Investment Research
What’s Hurting CUZ?
Competition from developers, owners and operators of office properties and other commercial real estate is likely to limit Cousins Properties’ ability to retain tenants at relatively higher rents and dent its pricing power.
Moreover, an anticipated rise in construction activity is poised to augment the supply of new Class A office space in the company's market. Given the competitive landscape, it may become increasingly challenging for it to backfill near-term tenant move-outs, resulting in lesser scope for rent and occupancy growth. Further, given the persistent macroeconomic uncertainties, it is expected that near-term demand for office spaces will remain choppy.
A high interest rate environment is a concern for Cousins Properties. The company may find it difficult to purchase or develop real estate as borrowing costs will likely be on the higher side due to elevated rates. Moreover, the dividend payout may become less attractive than the yields on fixed-income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Lamar Advertising (LAMR - Free Report) and Welltower (WELL - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for LAMR’s 2024 funds from operations (FFO) per share has been raised marginally northward over the past two months to $7.74.
The consensus estimate for WELL’s current-year FFO per share has moved marginally upward over the past month to $4.03.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.