On Jan 17, 2014, we reinstated our long-term recommendation on Cousins Properties Incorporated (CUZ) at Neutral. The decision portrays the company’s most recent dividend hike, thriving portfolio repositioning initiatives and decent third-quarter 2013 results. However, stiff competition, slow job growth and continued volatility in the office market are our concerns.
Why the Neutral Recommendation?
In tune with its efforts to boost stockholders’ return, last week, Cousins Properties hiked its quarterly cash dividend sequentially by 67% to 7.5 cents per share. With this, the company’s dividend equates to 30 cents on an annualized basis. The uptick reflects successful implementation of the company’s strategic plan over the recent years.
Cousins Properties’ portfolio is primarily concentrated in the high-growth Sun Belt markets, which, due to their long-term demographic trends, should exhibit above-average job growth. Therefore, with the favorable long-term forecasts for its markets remaining strong, we believe that the company has ample scope to ride on the growth trajectory, going forward. Its focus on building its business on a simpler platform, by specifically targeting trophy assets and opportunistic investments, ensures a steady revenue stream.
Driven by notable growth in revenues, Cousins Properties’ third-quarter 2013 funds from operations (FFO) came in at 11 cents, beating the Zacks Consensus Estimate by a penny. However, it came substantially below the year-ago figure of 25 cents as a significant rise in expenses in the quarter acted as the dampener.
Moreover, the protracted rate of job growth and persistent office space efficiency trends are limiting any robust growth in demand for office space. Additionally, the company faces stiff competition and its continuous portfolio repositioning activity involves significant upfront operating expenses that weigh upon its profitability in the near term. Hence, these remain concerns for Cousins Properties.
Additionally, over the last 60 days, the Zacks Consensus Estimate for 2013 FFO per share for Cousins Properties moved south by a penny to 51 cents. On the other hand, for 2014, it remained stable at 66 cents. This real estate investment trust (REIT) currently holds a Zacks Rank #3 (Hold).
Cousins Properties is scheduled to release its fourth-quarter 2013 earnings results on Feb 13, after the market closes. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at 16 cents per share, representing year-over-year growth of 14.29%.
Other Stocks to Consider
Investors interested in REIT-Equity Trust – Other industry may consider stocks like PS Business Parks Inc. (PSB), Ventas, Inc. (VTR) and Public Storage (PSA). All these stocks carry a Zacks Rank #2 (Buy).
Note: 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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