Cousins Properties Inc. (CUZ - Free Report) is strategically optimizing its portfolio in a bid to significantly penetrate the high-barrier-to-entry sub-markets of Atlanta, Austin, Charlotte, Orlando, Phoenix and Tampa. However, with intensifying competition in the company’s market, any robust growth is likely to remain elusive in the near term.
On Oct 6, 2016, Cousins Properties closed a stock-for-stock merger, worth more than $2 billion with Parkway Properties and spun-off the Houston-based assets of both companies into a new publicly-traded REIT. This merger helped fortify the company’s presence in Atlanta, Austin and Charlotte, as well as opened up opportunities to operate in Phoenix, Orlando and Tampa.
Since its inception, the company has built a well diversified portfolio, mainly concentrated in the best sub-urban markets. In fact, Cousin Properties owns an unmatched portfolio of Class A office assets concentrated in the Sun Belt markets.
Due to long-term demographic trends, properties in these markets display above-average job growth and hence are perceived as high-demand generating properties. Also, assets in these markets command higher rents compared to the broader market, providing ample room for the company’s top-line growth.
Cousins Properties’ well-placed portfolio enables it to enjoy high-end tenants on its roster. Notably, the company and privately-owned global real estate investment firm, Hines, recently signed a lease with software giant SAP at 8000 Avalon in Atlanta, GA. This contract adds another high-quality tenant to the company’s roster and makes 8000 Avalon 93% leased.
The above discussed efforts by Cousins Properties have led its shares to outperform the industry, year to date. During the period, shares of the company have gained 8.9% versus the industry’s rally of 6%.
However, it faces intense competition from other players in the office and commercial real estate market, which will weaken its ability to retain tenants at higher rents.
Although the company has a strong balance sheet, it remains vulnerable to rise in interest rates. This is because, its ability to refinance existing debt would be restricted, while the interest cost on new debt would escalate. This, in turn, is expected to adversely affect Cousins Properties’ financial results and dividend payout.
The Zacks Consensus Estimate for current-year funds from operations (FFO) per share has remained unchanged at 61 cents in a month’s time. Hence, the stock currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the REIT space include Seritage Growth Properties (SRG - Free Report) , Getty Realty Corporation (GTY - Free Report) and Communications Sales & Leasing, Inc. (UNIT - Free Report) . While Seritage sports a Zacks Rank #1 (Strong Buy), Getty Realty and Communications Sales & Leasing carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Seritage’s 2017 FFO per share estimates inched up 0.5% to $2.01 in a month’s time.
Getty Realty’s FFO per share estimates for 2017 moved up 7.8% to $1.94 over the past 60 days.
Communications Sales & Leasing’s 2017 FFO per share estimates climbed 14.4% to $2.54 in a month’s time.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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