When investors consider acquiring a stock, there are numerous variables to sort through to make an informed decision. Investors should assess the stock's fundamentals as well as its historical performance, dividend growth and recent events.
Investors must also ask: Is it an opportune moment to acquire the stock? How do analysts perceive the company's prospects? Does it have a niche that makes it unique?
Take a look at one real estate investment trust (REIT) that is carving out a geographic niche for itself that should bode well for its future earnings:
Cousins Properties Inc. CUZ is an Atlanta-based office REIT founded in 1958 by Tom Cousins. The company invests in Class A office towers in high-growth Sun Belt markets.
The Cousins management team believes the domestic migration seen over the past few years is beneficial to its long-term business model. States like Florida, Texas, North Carolina and South Carolina have seen an influx of hundreds of thousands of new workers who have left states like New York, California and Illinois.
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Most of Cousins' portfolio consists of newer office buildings, with an average construction year of 2004. Many of its buildings include upscale amenities like exercise facilities, meeting rooms, wellness centers and cafes. Because of this, Cousins can command rents that are 24% higher than the Class A average in its core markets of Atlanta; Austin, Texas; Charlotte, North Carolina; Dallas; Phoenix; and Tampa. Its tenants are high grade and well diversified by industry.
Although many office REITs have fared poorly over the past few years because of the work-from-home movement, return-to-office mandates have now impacted over 2.8 million office workers this year. The office REIT subsector has improved since the spring.
Cousins Properties has a market cap of $3.39 billion. Its 52-week range is $18.06-$28.66. It has had a total return of negative 5.82% in 2023. But since the March low it has risen about 29% and is trading right on its 200-day moving average.
Over the past six years, Cousins has seen a 38% increase in its gross rents per square foot. During that same period, the dividend has increased 33%. Its quarterly dividend of $0.32 per share has an annual dividend of $1.28 per share with a comfortable 48% payout ratio. The present dividend yield is 5.72%.
With a forward price/FFO ratio of 8.53, Cousins is one of the best values among the office REIT subsector. The sector median P/FFO is 12.03. Another positive is that its total debt/capital ratio of 34.98% is well below the sector median of 50.13%, and it has no debt maturities until 2024.
On July 27, Cousins Properties reported its second-quarter operating results. FFO of $0.68 per share beat the estimates of $0.65 per share but was 2.86% below FFO of $0.70 per share in the second quarter of 2022. Revenue of $204.32 million beat the analyst consensus estimate of $201.87 million by 1.21%. This was a 10.04% increase over sales of $185.68 million in the second quarter of 2022.
Cousins also increased its full-year 2023 FFO guidance from $2.55-$2.65 to $2.57-$2.65 per share.
Analysts have been positive on Cousins Properties recently. On Sept. 14, Trading Central upgraded Cousins Properties from Neutral to Buy. On Sept. 15, Truist Securities analyst Michael Lewis upgraded Cousins Properties from Neutral to Buy and raised the price target from $27 to $28.
Evercore ISI Group has an outperform rating on Cousins, with a $28 price target as well. Barclays has an Overweight rating on Cousins with a $29 price target. That represents a potential 29.6% increase from its most recent closing price.
On its second-quarter earnings call, Executive Vice President of Operations Richard Hickson made it clear that new and expansion leasing volume is making solid gains, with 40 office leases of 435,000 square feet contracted during the quarter. Of its total leasing volume, 79% was from new and expansion leasing, a level not achieved since 2021. The present weighted average leasing term (WALT) is now seven years. The weighted average occupancy rate is 87.3%.
Cousins Properties is a REIT in an improving subsector with a strong location niche. Revenue has increased for four consecutive quarters. Debt is low, and the stock trades at a valuation well below its subsector median. Analysts have been positive about the stock recently, and second-quarter earnings were better than expected. The office REITs are not out of the woods yet, and there could be a decline in commercial property values in some areas of the Northeast and California, but the Sun Belt states where Cousins Properties is should retain their values better.
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