Should You Retain Cousins Properties (CUZ) Stock for Now?

·3 min read

Cousins Properties CUZ is well-poised to benefit from its unmatched portfolio of class A office assets concentrated in the high-growth markets in the Sun Belt region amid the recovering U.S. office real estate market.

However, a competitive landscape and high supply in the office real estate market are expected to adversely impact Cousins Properties’ pricing power. Also, interest rate hikes add to its concerns.

With the gradual return of the workforce to offices, Cousins Properties has been witnessing a recovery in demand for its highly amenitized, well-placed office properties, as highlighted by a rebound in the new leasing volume.

In the fourth quarter of 2022, Cousins Properties executed 39 leases for a total of 632,379 square feet of office space, with a weighted average term of 11.6 years. This marked the highest quarterly square footage volume of 2022.

Going forward, the next cycle of office space demand is likely to be driven by the inbound migration and significant investments announced by office occupiers to expand the footprint in the Sun Belt regions. This is expected to boost the demand for CUZ’s high-quality portfolio of office assets in the forthcoming quarters.

Moreover, the company’s well-diversified, high-end tenant roster assures stable rental revenues for the company and lowers the risk associated with dependency on single-industry tenants. With ample financial flexibility, the company is well-positioned to capitalize on future growth opportunities.

However, the elevated supply of office properties weighs on Cousins Properties. Intense competition from developers, owners and operators of office properties and other commercial real estate limits its ability to retain tenants at relatively higher rents and dents its pricing power.

Given the competitive landscape, it might become increasingly challenging for the company to backfill near-term tenant move-outs, resulting in lesser scope for rent and occupancy growth. Also, with the prevailing macroeconomic uncertainty, the demand for premium office spaces is likely to remain choppy in the near term, hurting the leasing volume.

Further, a hike in the interest rate is a concern for Cousins Properties. Rising rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. We anticipate interest expenses for 2023 to be $90.3 million, suggesting an increase of 24.5% year over year. Moreover, the dividend payout might become less attractive than the yields on fixed income and money market accounts.

Shares of this Zacks Rank #4 (Sell) company have declined 22.6% over the past three months, wider than the industry’s fall of 2.6%. Also, consensus estimates for first and second-quarter 2023 funds from operations (FFO) per share have remained unchanged over the past month.

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Stocks to Consider

Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities, Inc. ARE and Terreno Realty Corporation TRNO, 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 Alexandria Real Estate Equities’ 2023 FFO per share has moved a cent north to $8.95 over the past month.
The Zacks Consensus Estimate for Terreno Realty Corporation’s ongoing year’s FFO per share has been raised two cents over the past two months to $2.17.

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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