Cousins Properties’ CUZ portfolio of Class A office assets in high-growth Sun Belt markets is witnessing higher leasing activity backed by tenants’ preference for premium office spaces with class-apart amenities. Its capital-recycling efforts are encouraging, and a healthy balance sheet aids financial flexibility.

However, competition from other industry players is likely to limit its pricing power, affecting rent growth momentum. A concentrated portfolio and high interest expenses add to its woes.

In December 2024, Cousins announced the acquisition of Sail Tower, a trophy lifestyle office property in Downtown Austin, TX, for $521.8 million. The same month, it acquired Vantage South End, a 639,000-square-foot lifestyle office property in the thriving South End submarket in Charlotte, NC, for $328.5 million.

Analysts seem bullish on this office REIT carrying a Zacks Rank #3 (Hold), with the Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share being raised marginally northward over the past two months to $2.68.

Over the past six months, shares of the company have rallied 26.9%, outperforming the industry's 8.3% growth.

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What’s Aiding Cousins Properties?

Cousins Properties has an unmatched portfolio of Class A office assets concentrated in the high-growth Sun Belt markets. Amid favorable migration trends and a pro-business environment, corporate relocations and expansions in the Sun Belt markets have gained pace, driving the demand for office space. Properties in these markets are also expected to command higher rents compared with the broader market.

With a significant presence in the best urban submarkets in each city and the high-growth Sun Belt markets, Cousins Properties has been able to enjoy healthy demand for its properties. For the nine months ended September 2024, the company executed 114 leases for a total of 1.6 million square feet of office space with a weighted average lease term of 7.8 years. The company’s lease expirations through 2026 are among the lowest in the office sector. With modest lease expirations lined up, the company is well-positioned for growth.

Cousins Properties makes concerted efforts to upgrade portfolio quality with trophy asset acquisitions and opportunistic developments in high-growth Sun Belt submarkets. It also makes strategic dispositions for a better portfolio mix. The company’s strategic portfolio rebalancing efforts are expected to contribute to its future growth.

Cousins Properties focuses on maintaining a solid balance sheet with ample liquidity and limited near-term debt maturities. This helps it capitalize on improving market fundamentals. The company exited the third quarter of 2024 with cash and cash equivalents of $76.1 million. As of Sept. 30, 2024, Cousins Properties had a net debt-to-annualized EBITDAre ratio of 5.10. As of the same date, it had no amount drawn under its $1 billion credit facility. With considerable liquidity and access to capital markets, it enjoys ample flexibility to pursue compelling growth opportunities.

What’s Hurting Cousins Properties?

There is competition from developers, owners and operators of office properties and other commercial real estate. This affects Cousins Properties’ ability to retain tenants at relatively higher rents and dents its pricing power.

Cousins Properties’ assets are mainly concentrated in Atlanta, GA, and Austin, TX. During the third quarter of 2024, Atlanta and Austin contributed 36% and 32.7%, respectively, to the company’s net operating income. Hence, any economic or political downturn in these markets is likely to affect Cousins Properties’ performance.

Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and is a concern for Cousins Properties. The company has a substantial debt burden, and its total debt, as of Sept. 30, 2024, was approximately $2.83 billion. In the third quarter of 2024, interest expenses jumped 13.9% to $30.8 million year over year.

Stocks to Consider

Some better-ranked stocks to consider from the broader REIT sector are Crown Castle Inc. CCI and Highwoods Properties HIW, 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 Crown Castle Inc.’s current-year FFO per share has moved northward marginally over the past two months to $6.99.

The Zacks Consensus Estimate for Highwoods Properties’ current-year FFO per share has been raised marginally over the past month to $3.62.

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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