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.

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. In 2024, second-generation net rent per square foot on a cash basis increased 8.5%.

Cousins Properties is seeing a recovery in demand for its high-quality, well-placed office properties, as highlighted by a rebound in new leasing volume. For 2024, the company executed 157 leases for a total of 2 million square feet of office space with a weighted average lease term of 7.9 years. Going forward, with the continuation of inbound migration and significant investments being announced by office occupiers to expand the footprint in the Sun Belt regions and return to office gaining momentum, office market fundamentals are going to support Cousins' performance.

The company makes efforts to upgrade portfolio quality through the acquisition of trophy assets and opportunistic developments in high-growth Sun Belt submarkets. It also makes strategic dispositions for a better portfolio mix. Such efforts have helped the company 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.

Cousins Properties focuses on maintaining a robust balance sheet with ample liquidity and limited near-term debt maturities to capitalize on improving market fundamentals. The company exited the fourth quarter of 2024 with cash and cash equivalents of $7.3 million. As of Dec. 31, 2024, Cousins Properties had a net debt-to-annualized EBITDAre ratio of 5.16. As of the same date, it had $112.3 drawn under its $1 billion credit facility. Thus, with considerable liquidity and access to capital markets, it enjoys ample flexibility to pursue compelling growth opportunities.

Analysts seem bullish on this office REIT carrying a Zacks Rank #2 (Buy), with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share being revised northward by 1.1% over the past month to $2.79.

What’s Hurting Cousins Properties?

Competition from developers, owners and operators of office properties and other commercial real estate 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 fourth quarter of 2024, Atlanta and Austin contributed 35.6% and 32.3%, 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 late in 2024, 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 Dec. 31, 2024, was approximately $3.27 billion. In the fourth quarter of 2024, interest expenses jumped 20.4% to $33.1 million year over year.

Over the past six months, CUZ shares have dropped 11.6% compared with the industry's decline of 10.8%.

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Other Stocks to Consider

Some other top-ranked stocks from the broader REIT sector are Welltower WELL and W.P. Carey WPC, each carrying a Zacks Rank of #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Welltower’s 2025 FFO has been moved marginally upward to $4.93 per share over the past month.

The Zacks Consensus Estimate for W.P. Carey’s full-year FFO has been revised marginally northward to $4.85 per share over the past two months.

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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This article originally published on Zacks Investment Research (zacks.com).

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