Mizuho Securities has named Cousins Properties (CUZ) and Phillips Edison & Company (PECO) as its top real estate picks for August, citing their attractive yields and upside potential. REITs have notably outperformed the broader market this year. Both companies recently reported strong quarterly earnings and raised their full-year guidance.
Mizuho's Top August Real Estate Picks: Cousins Properties and Phillips Edison Offer Attractive Yields
By Mizuho Analysts | August 15, 2024
Mizuho Securities has identified two real estate investment trusts (REITs) as its prime selections for August, highlighting their potential for upside and attractive dividend yields. Cousins Properties (CUZ) and Phillips Edison & Company (PECO) are currently offering yields of 4.34% and 3.24%, respectively, making them compelling options in the current market environment.
REITs Outperforming the Broader Market
Real estate investment trusts have demonstrated robust performance year-to-date. The FTSE Nareit All Equity REITs Index has seen a gain of 17.7% through July 31st, significantly outpacing the Dow Jones U.S. Total Stock Market Index's 10.5% return. These figures are based on total returns, which include the reinvestment of dividends.
Mizuho's Top Picks Breakdown
Mizuho categorizes its REIT recommendations into two key areas: Healthcare/Industrial/Office and Retail/Housing/Triple Net.
Cousins Properties (CUZ): A Sunbelt Office REIT
Within the Healthcare/Industrial/Office segment, Cousins Properties is highlighted by Mizuho analyst Vikram Malhotra. This REIT focuses on the Sunbelt region, owning and managing 20 million square feet of office space across key markets like Atlanta, Austin, Charlotte, Dallas, Nashville, Tampa, and Phoenix.
Cousins Properties recently reported strong second-quarter results, surpassing analyst expectations for both revenue and funds from operations (FFO). FFO came in at 75 cents per share, a penny above consensus, while revenue reached $268.5 million, exceeding the $263.5 million forecast. The company also raised its full-year FFO guidance at the lower end.
Despite a year-to-date share gain of approximately 16%, Malhotra sees further upside. Key catalysts include the fundamental recovery in Sunbelt markets, evidenced by improving absorption and leasing momentum in cities like Austin and Atlanta, coupled with reduced supply risk. He also points to lower execution risk, supported by strong second-quarter leasing activity, a substantial pipeline, and positive rent spreads.
Malhotra has set a $33 price target on CUZ, suggesting a potential 12% increase from its recent trading price. The company's flexible balance sheet is also expected to support growth through strategic asset sales and acquisitions.
Phillips Edison & Company (PECO): A Grocery-Anchored Retail REIT
In the Retail/Housing/Triple Net category, Phillips Edison & Company is recommended by analyst Haendel St. Juste. The REIT's portfolio comprises 330 shopping centers, predominantly anchored by grocery stores.
Phillips Edison also delivered solid second-quarter results, with core FFO of 69 cents per share, one cent above estimates, and revenue of $189.6 million, surpassing the $187.5 million expected. The company has also revised its full-year core FFO guidance upwards.
St. Juste anticipates above-average FFO growth for PECO in 2026 and 2027, projecting outperformance within the shopping center subsector. Catalysts include earnings growth fueled by capital deployment and sustained leasing demand in a supply-constrained environment. Notably, PECO has minimal exposure to watchlist tenants and boasts the highest occupancy rate in its sector at 97.5%. Any tenant bankruptcies could present opportunities for re-leasing at higher rent spreads.
With a price target of $43, St. Juste implies a 7% upside potential for PECO, whose shares have already climbed nearly 14% year-to-date.
