Q4 2019 Earnings Call

Thursday Thursday

Dead dead dead dead.

Thursday

dead dead dead dead.

Six months good day and welcome to the cousins property Incorporated fourth quarter earnings conference call. All participants will have will be in a listen-only mode. Should you need assistance, please signal bulb and specials by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to Pam Roper general counsel, please go ahead.

Thank you. Good.

Good morning, and welcome to cousins properties fourth quarter earnings conference call with me today are calling Connolly our president and chief executive officer Richard Nixon our Executive Vice President of Operations. And Greg eczema. Our Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon, as well as furnished on form 8-k in the supplemental package. The company has reconciled all non-gaap Financial measures to the most directly comparable gaap measures in accordance with Reggie requirement. He did not receive a copy of these documents are available through the quarterly disclosures and supplemental SEC information link on the investor relations page of our website. Please be aware that certain matters discussed today, May constitute forward-looking statements within the meaning of federal Securities laws and actual results. May differ materially from these statements due to a variety of risks and uncertainties and other factors home. So Universe factors set forth in our annual report on form 10-K and our other SEC filings. The company does not undertake any duty to update any forward-looking statements whether as a result of new information future events, or otherwise.

The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday and a detailed discussion of some potential risk is contained in our filings with the SEC.

With that, I'll turn the call over to Colin Colin Thank you Pam and good morning. Everyone 2019 was an extraordinarily productive and busy year for cousins Thursday. We transform the company with the merger and we now own an unmatched portfolio of trophy office properties in the Premier submarkets of Atlanta Boston, Charlotte Dallas Tampa and Phoenix as a result throughout the year. We also announced a series of compelling transactions including the north Norfolk Southern headquarters project the value-add Acquisitions of 1200 Peachtree and Terminus in the truest headquarters least at Hearst Tower.

The team's hard work is driving strong financial results is highlighted in our fourth quarter earnings release. We delivered 73 cents per share and ffo before transaction page operationally, we leased 562 thousand square feet and reported cash same property noi growth of 6% and cash second-generation leasing spreads of 12.6% These metrics are among the best in the office sector overall. We exceeded our expectations a sign from an increase in G&A expenses directly attributable to our strong share price performance during the quarter.

Begin, 2020 the economy remains strong and businesses continue to add jobs office fundamentals remain healthy with steady demand for new space-age measured increases in new Supply cousins is exceptionally well positioned to gain momentum from these Trends and to create value for our shareholders and we'll highlight why our first our Sunbelt markets are among the strongest in the United States recent census data highlights a meaningful migration from the Northeast Midwest and California to the subject.

This significant population shift is translating into strong office using employment growth in our markets for Baird office employment wage growth in our core markets is exceeded the national average by 100 basis points boosted by these Tailwinds Austin Charlotte Tampa Atlanta and Phoenix are all among the top markets across the country with strongest rent growth according to costar.

second

We own the leading Sunbelt portfolio in the office sector illustrate the quality of our properties 100% or class a 78% or near mass transit in the back to your bill is two thousand and two as you would expect this trophy portfolio commands premium rents, for example asking rents in our Austin in Atlanta, Georgia are 37% and 26% higher than their respective Class A Market averages.

The weighted average in place gross rent in our portfolio now stands at $37.44 per square foot, which is substantially above our Sunbelt peers.

Third we possess a rock-solid balance sheet that provides meaningful Financial flexibility. We finished the quarter with a net debt-to-ebitda of 4.55 tons off in additionally approx. 80% of our portfolio is unencumbered and we currently have approximately $765 million dollars of liquidity.

In the strength of our markets our portfolio and our balance sheet cousins is poised to drive both organic and external growth.

The Highlight our 2020 earnings guidance assumes 5% same property noi growth further just last night. We announced that we had commenced construction on a 100 Mil in the Tempe submarket of Phoenix. The project is 44% pre-leased to a Fortune 100 company in a Professional Services firm. We look forward to sharing specifics in conjunction with our customers lease announcements in the coming weeks.

Currently our development pipeline now totals $565 million and includes one point five million square feet of office space that is 80% free least the existing pipeline. We own a Land Bank that can support three point four million square feet of new office Development Across our footprint notably large corporate interests in the domain in Austin remain strong domain 9, which would total approximately 330000 square feet is likely our next near-term opportunity.

Switching gears to transaction updates through us as we previously disclosed has executed. It's option to purchase Hearst Tower for a gross price of 455.5 million closing is scheduled for March 31st.

Woodcrest the small New Jersey asset we acquired through the tear merger is under contract and scheduled to close this month given we are under a confidentiality agreement. We are unable to provide more details and until the transaction is completed.

Lastly as we disclosed in our earnings announcement. Our partner in Gateway Village in Charlotte has triggered his purchase option to acquire our 50% interest in a price of 52.2 million is highlighted previously in our quarterly supplemental in our annual ten K's. The purchase price in the option is based on a 17% off our our our cousins invested Capital closing is scheduled for March 31st.

over the

Type of the Venture which commenced in nineteen ninety-eight Gateway Village is projected to generate approximately eighty million dollars in profits Two Cousins on our initial 10.6 million investment off. This has been a homerun development by any measure.

With these dispositions scheduled to close during the first quarter our current development pipeline in a recent Terminus acquisition are fully funded. No additional assets a life required to maintain our leverage targets.

Lastly I want to highlight the value proposition at cousins one more time in today's market. We appreciate that investors are searching for growth both in terms of money and SFO in some instances. These can be competing goals as cousins. However, we are well-positioned to do both. We own an unmatched portfolio of trophy office hours across the Sunbelt. We have the right properties and the right locations to meet growing customer demand. In addition. Our well least development pipeline is both a source of tremendous value creation and long-term stabilize earnings.

in total

Pipeline is projected to deliver annualize noi of approximately 73 million dollars upon projected stabilization in 2022.

In conclusion, the team is cousins is excited to capitalize on the compelling opportunity in front of us building the pre-eminence Sunbelt Office read while this strategy may sound sick. We believe that it is unique and compelling with the merger behind us in solid fundamentals in our markets. The ingredients are in place for a strong and productive 2028.

Before turning the call over to Richard. I want to thank the cousins team which continues to work tires tirelessly in all of our markets. I recognize and appreciate your talent and passion for the company Richard.

Thanks for calling the 2019 operating your cousin's ended on a strong note our team completed 562 thousand square feet of leasing in the fourth quarter bringing our total annual leasing activity to over three million square feet. This is the highest annual leasing activity in our company's history as a dedicated office loner while our 2019 activity included to notably large and unique leases both with truest and Charlotte and Norfolk Southern in Atlanta the balance of our activity during the year was economically solid and broad-based across all of our core markets.

Rick growth was a

Be strong in the fourth quarter with a second-generation net rents increasing 25.5% on a gaap basis and 12.6% on a cash basis our total loss portfolio into the quarter at a solid 93.6% least with weighted average occupancy of 90.1% both essentially in line with the prior quarter off the same property portfolio percent least and weighted average occupancy were both 1% higher at 94.6% and 91.1% respectively the office calling medals and all our core markets remain positive fourth-quarter and full-year class a net absorption were positive across the board with Charlotte and Phoenix posting record or near-record absorption for the full occupancy and rent row seats in our markets continue to outperform National averages and are largely consistent with what we experienced during the first three quarters of 2019.

the same holds true for job.

According to recent City research year-over-year employment growth in each of cousins core markets was well ahead of the US average of 1.4% Tampa and Atlanta posted favorable annual employment growth 2.2 and 2.3% respectively while other cousins core markets experienced even higher employment growth between 2.9% and 3.4% according to CBRE Global centers of Technology like those in business friendly taxes and high growth Southeast metros are once again expected to be the top markets for office using jobs growth in 2020. CBRE also forecasted Austin to have the highest percentage job growth in 2020 of any US market.

On the supply side while all our markets are still experiencing growth in new Supply. We are tracking activity levels the closest in downtown Austin in midtown Atlanta. However long we still view the amount of Supply under construction in these more active submarkets as manageable relative to stock and at an overall healthy least status relative to the stage of completion midtown Atlanta is a particularly interesting Case by our estimate 3.7 million square feet is currently under development in the core of Midtown and it collectively stands at about 59% free weights local market shatter. However, indicates that a substantial amount of the remaining available Midtown space could be leased or encumbered by a handful of large users in very short order of the coming months will be telling but if this is any indication demand appears to be keeping up with Supply

We estimate the downtown.

Austin has about three point four million square feet under way that stands at about 51% free waste her. Jll the entire Austin Market has absorbed almost eleven point six million square feet since 2013. This is compared to 10.1 million square feet of new Supply in that same time frame. This is clearly a very strong track record of absorption and Foundations point to continued healthy demand in the Austin Market.

Now I'll turn to some specifics on cousins performance fourth-quarter leasing activity in our 7 million-square-foot Atlanta portfolio was once again robust would over two hundred and ten thousand square feet of signed lease box with solid red Growth Atlanta portfolio ended the quarter at a healthy 91.2% lease in line with the prior quarter similar to the third quarter 50% of our activity was in Buckhead Atlanta leasing included a 78,000 square-foot renewal and expansion of Jones Lang LaSalle at 3344 Peachtree and a 48,000 square-foot new lease with agenda at Terminus. We also completed twenty four thousand square feet of leasing at Buckhead Plaza this quarter as we have noted in the past employees rents at this particular project or well below Market, which is created some near-term pressure on occupancy as some of our expiring customers have simply been priced out of the project. However demand from new customers has been encouraging in

we feel good about our ability to stabilize the

With much higher employees rents. Additionally, we've also kicked off an exciting new reinvestment in the project focused on upgrading all exterior and ground floor common spaces feedback on our plans from our customers and the market has been fantastic so far and we are excited about the momentum. This should provide to our already encouraging leasing activity.

Phoenix team also deliver a strong two hundred and four thousand square feet of leasing activity in the fourth quarter. It included an important strategic 126,000 square foot early renewal 63,000 square foot expansion of Silicon Valley Bank at Hayden Ferry. We view this commitment by spb as a strong endorsement of Hayden Ferry and the downtown Tempe subject and think it bodes well for the ultimate success of our new hundred Mill development, which again is already 44% free waste Percy B R E Class a vacancy in the tippy submarket a that's running under 5% our Phoenix operating portfolio end of the quarter at 97.6% lease up from 94.2%

Austin was also

Active again this quarter which should persist if in migration and job growth in Austin continue to spike are four million square foot portfolio, which is well Diversified Diversified across the CBD domain and Southwest submarkets ended the quarter at 95.8% lease or Austin teens signed leases totaling seventy thousand square feet including an important renewal of broadcom at the terrorists. Once again, Austin delivered remarkable second-generation CashNet rent growth coming in at 34.7% for the quarter our other core markets Charlotte Church in Dallas are also perform performing. Well our teams in these markets executed 73,000 square feet of leasing this quarter in each one of these portfolios end of the quarter at over 95% wage.

Lastly I want to know if that our team is very focused on proactively backfilling are larger pending vacancies at Bank of America Plaza in Charlotte and 1200 Peachtree and 3rd Street in Atlanta while we get back for floors at Bank of America Plaza during this calendar year. We do not get possession of the Lion's Share of the pending vacancy this building until the end of September 2020 possession of the other two Atlanta finding vacancies will occur in the latter half of 2021. We've you all of these as great value creation opportunities, as long as you will recall, we acquire the first two of these properties during 2019 and they were underwritten with full knowledge of these future move-outs all three of those all three of these properties enjoy prom locations in their respective amenity-rich Urban submarkets and are within easy walking distance of if not directly adjacent to public transit.

in short

Three of these fit perfectly within our long stated strategy our teams in Atlanta and Charlotte are extremely optimistic and excited to execute on these leasing opportunities in the coming year and Beyond would that I'll turn the call over to Greg. Thanks Richard. Good morning everyone. I'll begin my remarks by providing an overview of our financial results wage including st. Property performance followed by a discussion of our balance sheet before closing my remarks with revised 2020 earnings guidance.

As you can tell from counter Richard's comments are fourth-quarter results were outstanding on many fronts episode with 73 cents per share excluding tear transaction costs, which represents a 9% increase over last year's beyond episode the important operating metrics that both you and we focus on we're also very strong leasing velocity was solid second-generation leasing spreads were positive and see property your rear cash and increased for the 32nd consecutive quarter.

Included in this quarter's results or three items. I'd like to highlight before providing some color on our same property portfolio first our general and administrative expenses during the fourth quarter were eleven million dollars off and they were thirty-seven million dollars for the full year significantly higher than our guidance for the full year of 33 million dollars are recent strong share price performance. Clearly a positive element is behind this variance the other components of Gene a were in line with our forecast. This isn't the first time we've reported a large variance in our G&A expenses. This volatility is dead by the fact that our long-term incentive Compensation Program is heavily weighted toward performance-based RS use which ensures Management's interests are aligned their shareholders.

These are issues that historically settled in cash and must be marked-to-market each quarter beginning with the units granted this year. These performance-based ours used will not settle in stock, which will significantly reduce the quarter-to-quarter impact on GNA. This change will put us in line with our office. Who also use RS use

relating

Obviously issue. Excuse unchanged and since our performance-based artists used Cliff vest after 3 Years, it'll take a couple of years for the full impact to run through our financial statements. However, the volatility will begin to decline a mediately second. I'd like to discuss some non-core land sales in general the likelihood and timing of land sales can often be difficult to predict with any accuracy and we saw this on Thursday play out during the fourth quarter. When we provided guidance back in October. We assumed a sale of a remaining land at the Wildwood development during the fourth quarter instead. We ended up selling our remaining land at this point development during the fourth quarter subsequent quarter, and we've also now sold the Wild Land and we've adjusted our 2020 forecast accordingly.

Third the sale of our Woodcrest acid also slipped from the fourth quarter of 2019 to the first quarter of 2020 as Colin said earlier. This property is under contract and scheduled to wage was later this month and our 2020 forecast has been adjusted moving out to our same property portfolio. Year-over-year noi was up 6% during the fourth quarter driven by 5.1% Revenue growth for the year cash in a while was up to 4.8% over 2018.

Taking a step.

Backed with the longer-term trend year-over-year cash in a way increased 4.7% in 2018 4.8% in 2019 and is forecast wage increase 5% in 2020. Not only are these great numbers. They're accelerating clearly validating the continued strength of our class A assets and our Sunbelt markets.

Turning to the balance sheet or fourth quarter net debt-to-ebitda ratio was 4.55 times. This was up from last quarter driven by the purchase of our partners interest at Terminus as Colin laid out earlier took several assets during the first quarter and when we report again in April our net debt-to-ebitda ratio will be considerably lower as a reminder over time. We've managed our net debt-to-ebitda between 4:30 and 4 and 1/2 times and we've generally run the company within this range since 2014.

With that I'll close by updating our 2020 earnings guidance. We currently anticipate ffo between $2.72 and $2.86 per share. This is off our previous guidance of $2.71 to $2.85.

all these

Options behind this guidance are unchanged from the guides. We provided in October except for the following first. We anticipate G&A expenses of 32 to 34 million net of capitalized and salaries. This is down from our previous guidance of 33 to 35 million.

Moving on we anticipate interest in other expenses net of capitalized interest of sixty-eight seventy million down from the previous range of 69 to 71 million due to an increase in capitalized interest off.

Next we anticipate a one point four million dollar gain from the remaining land sale at Wildwood that I discussed earlier. And finally we've added the sale of Woodcrest and Gateway Village to our guidance as off the commencement of development at 100 with that. I'll turn the call back over to the operator.

We will now begin the question-and-answer session to ask you a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key to withdraw your question, please press star then to the first question comes from Jamie Feldman from Bank of America Merrill Lynch, please go ahead ma'am. Thank you. I want to go back to your comments on some of the move-out fee of a plaza Peachtree buildings. Can you just talk about leasing prospects for those buildings? And then I'm calling when you started talking, you know, you said a couple of times that you know cousins is poised for growth here and any of the accretion, but how should we think about the drag on earnings growth for some of those spaces as we think about next year.

With Jimmy it um, good morning and the you know, again is as we look at those move-outs. Um, we continue to be extremely optimistic about our prospects to to back fill that space and and like, you know other properties in our portfolio. They are the the Bank of America project in in uptown Chicago to 1200 East Street Building in Midtown and the $33 building. We Ransom will be moving out next year are all in absolutely.

Terrific submarkets, they're extraordinarily. Well located all in close proximity to 2 mass transit and and we've we've discussed the the the overall Trends in our markets and and and really being boosted by that this migration that we've seen from, you know, the Northeast to the southeast. So we feel very good about the prospects to to backfill space like we've done on on others at uh-huh, you know at Terminus and like we did at Hearst Tower with with truest. So as we get closer to actual having that space back, I think we've got a tremendous opportunity to to to backfill that um, and in stabilize this properties got a bigger picture, I think about, you know, earnings drag, you know, the initiative my remarks were obviously focused on both.

driving in

Creating ffo growth and nav growth and and we think that we're we're doing that and and if you really look at the the cousins strategy, right it's going to multi-faceted where we've got a listing portfolio, uh, which which continues to perform, you know, extraordinarily well and deliver growth, you know, at the same time. We have got this fabulous development pipeline that will deliver or ultimately over seventy million dollars of stabilized in a y as we get into 2022 which will more than offset any any dilution from downtime associated with these particular customers. And so, you know is we look at those 1200 Peachtree as an example. We bought that because it's in a great location and we bought it at a 50% discount to replacement cost. I think if we looked at our Alternatives knowing that they were moving out we could have bought, you know stabilized dead.

at a much higher value

And a much lower yield that but we think this is a terrific opportunity for our team to do what it does best which is to reposition and and stabilize a fantastic asset will create of value in doing so also creates long-term earnings growth that 1200. But again, I think this development pipeline that we've got is so powerful and really took some of that additional in a wide offset any move out that we might have

Okay, that's helpful. And then I guess for be of a you're saying you're not even you're not marketing it yet, even though you know they're moving out. Is that the right way to read what you guys Jamie? This is Rich nowhere. Absolutely already marketing it, uh, you know, the the market in Charlotte has been aware of this this move out for quite some time. So it's a very well-known. Um, and and I would say obviously this one is is the earliest of the three that that we've kind of talked about here today already with the bulk of that coming back at the end of twenty and and we're already getting some good looks and inquiries from both both large users. It would take multiple floors, but also just more kind of bread and butter prospects that would take partial floors. So we're we're all over the team is is actively working on and we seen that space up today.

And how would you compare the total pipeline?

And of Demand versus the space, you have to lease.

magnet in terms of size

It's Jamie. It's you know, there there's a lot of different is Richard said users that both big and small, you know, some of those larger users are looking at at multiple markets. So sometimes that can be hard to quantify. But again, if you if you just step back and and look at the the activity in Charlotte and particularly Uptown over the last kind of 12 to 24 months. Obviously, we've talked about the truest leases. We do have over five hundred thousand square feet Honeywell has announced that they're moving their corporate headquarters from New Jersey to Uptown Charlotte Lowe's, uh is is just announced that they're going to do a sizeable transaction as they move from the suburbs to be more of an urban orientation. And and I think if we had the space at Bank of America today that that we would have absolutely, you know been in the mix for for some of those authors

Unity, so I think that again gives us great confidence as we look forward.

To over the next year or two as we get that space back to just to have similar opportunities.

Okay, and then last for me if you look at page eighteen of the supplemental your analyze 33% Atlanta 23% Austin 17% Charlotte. I mean, how do you think about the mix of those markets and you just think of you know Geographic diversity going forward?

Yeah, Jamie, we've we've we've been been very intentional to to build some Geographic diversification across the you know, the best markets wage of of the Sun Belt. And you know, if you went back several years ago, we were probably get over uh over represented in in Atlanta at some point over 50% and so long so we have I think creative really attractive diversification today. And as you look across the the Sun Belt in terms of markets to have a meaningful investment, you know, Atlanta Austin and Charlotte would be you know, all up near the top of the list and and in fact, I think if you look at recent rankings of most attractive Mark gets in in the office sector in 2020 all three of those very very well. So so we're we we absolutely like our position in in the south

To scale that that we've got in as markets same.

time, you know will continue to look for opportunities to to grow in our other markets and as we discussed earlier, we announced the start of of a hundred mil in the Tempi submarket of Phoenix office, and we've got a terrific site to build the fifth building, uh in Tampa at Corporate Center, and we've got a couple of really terrific sites in in Dallas and so we'll continue to to to grow and and our other markets, but but to have anchor positions of the quality that we do in in Austin Atlanta and Charlotte, I think it's a great it's a great position to be in

Okay, but you don't feel the need to shed any assets in those markets to bring those numbers down.

And we do not. Okay. All right, great. Thank you. Thank you, Jamie.

The next question comes from Anthony Perrone from JPMorgan, please go ahead.

Yeah, thanks. The relocation Trends been underway for a while and your markets. It just seems like you know every day. There's another announcement. Can you just talk about anything that that's surprising you or that's the whole point as you talk to users as it relates to either submarket preferences type of space price sensitivity or otherwise

Sure.

In the morning Tony the we agree with you. I think the that that trend is continuing if anything it's it's accelerating and as we talk to potential customers CEOs at these companies as to what's driving, you know their decision. I would you know, it's obvious that that's the kind of lower cost of doing business lower taxes get a less regulation and then Sunbelt are are obvious reasons at the same time. I think one one thing that's been a little bit of a surprise in in the feedback that we we've received is is he's companies recognize and appreciate that the the best submarkets in the Sunbelt have have rapidly Herbalife and there's a very Vibrant Community of mix of uses and and as he's submarkets like midtown Atlanta and downtown Austin had

Continue to grow I think CEOs.

Recognize that these are highly attractive destinations for for their employees that that can offer a similar lifestyle that that you might find in in Manhattan or San Francisco. So we think that will continue to accelerate and and as companies make the move I think it gives other companies that confidence to do that as well as they see the success of that companies like Amazon and NCR and others are are having uh-uh in in their recruiting. So we we think that Trend will continue play very favorably off to to our portfolio. I think they they have tended to focus on higher-quality Space. We we oftentimes discuss the flight to Quality that's taking place. And as you look at the statistics, it's certainly proves that out that the the class A properties are faring better from a demand and I think again it comes back to companies are focusing on recruiting and retaining Talent wage.

and and it recognize that that overall cost is

Is is outweighing the specific real estate cost expense?

Okay, thanks for that. Another question on domain. You mentioned potentially that being up on Deck next. What's the gating factor for for starting that way to do it on spec or do you do you need a free lease which is the decision? They're yeah Tony it as it relates to development. We're project-by-project in terms of our decision to to move forward with with speculative space or or a pre-lease as it relates to life domain 9 in our team is his appropriately taken some time since closing the merger to get our arms around the domain understand the design and construction of that project. I think they've they've done a really nice job of taking the original design and and adding a few elements as it relates to amenities that we think will be dead.

attractive too

Uh to users. So um, you know, we're excited about the project and I think if you look at the overall demand in the domain and how tight the market is I Think We're Young, you know, we've got a lot of confidence in in a bullish to to move forward with that project, you know, hopefully we'll have some good news to share and in the not-too-distant future.

Okay. Thank you.

The next question comes from Blaine from Wells Fargo, please go ahead.

Great. Thanks. Good morning, just to follow up on the shadow development pipeline. I think I'm previous calls or in previous conversations calling you talked about being happy with your land Holdings and in most markets, but you'd notice that you're a little lighter or actually I think out of the land in Charlotte just given how hot that market is right now. I wanted to see if there was any update on your search for land and then commentary you can give on whether you're just looking for that land in in in Phil submarkets, or would you look and some submarkets? That might be more kind of up in Chrome.

Yeah.

We continue to believe it cousins that it's important for us to have a you know, a very attractive land bank to position ourselves when when the next customer to show up looking for a new trophy space. And so, you know, we look forward, you know, Charlotte as I mentioned the past is clearly Market that now that we've delivered the dimensional Place project. We do need to acquire a site to to position ourselves. And in our team is actively working that on on multiple fronts multiple pieces of land and and I think we're very encouraged that uh, in in the relatively near future we'll be able to position wage is the right way in Charlotte. I I do think that as we look for land it will I think continue to be in the in the type of submarkets that were invested today in in those dead.

Are the urban and well Amanda time.

I submarkets in Charlotte. That's absolutely Uptown and the south end but there are also some other as you mentioned up-and-coming some markets that that have got, you know, real attractive amenities. Uh, and and so I think we'll we'll we'll look for opportunities and in those type of submarkets as well.

Highlighted in in the truest transaction that the you know, the very largest banks call at the top five top 10 Banks absolutely want to own their their corporate headquarters outside of their corporate headquarters. I think there's been a little bit less sensitivity around that and I think it's very specific to what the particular business unit group is and how much less ability that that they want. I think the, you know, the Gateway Village, um purchased by our partner in that project I think was really driven down to what the underlying use has evolved to at Gateway Village. It is very much a a mission-critical facility for them at this point a significant portion of its data center. And I think from a security standpoint. It's it's it's important for them to control that space and and I think ultimately that drove off.

Decision and obviously there there's a 17% you know, effectively cost of capital that that I think they realized, you know was time for them to to move forward and control that.

It looks to me like it's about a 14 cap the Gateway Village. Your 50% interest is being bought it about a 14 cap. Does that make sense?

Hey John, it's Greg. It was a highly structured deal. And it the purchase price of fifty two point two million dollars is really has nothing to do with cap rates or appraisals or marketing of it. All it has one hundred percent to do with just returning a 17% I are on our invested Capital. So although you know, we are giving up about seven seven and a half million dollars in gap and a y on an annual basis. That's not how it was priced. And and I'm not sure that's a really relevant way to look at it.

Oh, I I understand. It's it's just priced that way for it's important to understand for people who do any of these last question Tempe about $530 of. Can you describe what you're building for? 5:30 a foot structured parking below grade parking extra parking big land basis. How do you get up to over $500 in Tempe?

Yeah, sure.

For John and and just actually going back to your to your last question. I want one thing that's important to to notice it relates to you know Gateway and it's Greg mention, you know, we'll lose some some analog from that. But at the same time even with that disposition, we were still able to raise our our 2020 guidance, which I think is which is which is really powerful women over to track you're right the cost per square foot of that project is over $500 a foot, which is certainly a bigger number as you compare it to similar-sized projects at the Domain and and then you can particular what's driving that cost at 100 Mill project is is really twofold one. It's a it's a smaller tighter wage labor market and and that that drove, um the cost of of some of those trades and then the that particular project we are building some underground wage.

parking and

That is really required by a height restriction in Tempe a given its proximity to the commercial airport. But I think importantly the even with the higher cost per square foot. Our customers were were ultimately comfortable with the the rent that that justifies that cost and and we'll we'll deliver that project at very similar returns to uh, the the other parts of our development Pipeline. And then my my recollection is you're still showing domain at the off the tier basis in the dirt and their development but this one I think your show are you showing it fair market value for the dirt or what? You paid to acquire the dirt with the tier merger?

You referencing a hundred mil. Yes. So a hundred mil is is a legacy cousins project. Oh my God. Sorry. I stand corrected stand corrected wage. Great. All right. Thanks a lot. Thank you, John. All right, enjoy.

Again, if you have a question, please press * then 1 the next question comes from Dave Rogers from Baird, please go ahead.

Yeah, good morning calling. Just I heard your comments earlier about FFL and how the development will offset the move out. But I guess maybe turning to some of the assets sales that you might consider to be non-core Briarlake Burnett Plaza in in markets or assets. You don't want to own. How do you think about balancing the dilution of having to kind of sell those versus the move out to the developments and and the timing and not keeping your faith kind of tied to some of those known?

What do we have worked really hard to get the balance sheet in in a terrific position. So, you know, we're where we sit today. We really feel pressure to make you know, any additional dispositions to to fund the the current development pipeline or you know, again the the recent purchase off the our partners interest at at Terminus I think over time is is we you know, we identify compelling new investment opportunities to expand the development pipeline or or other property Acquisitions, you know, we can always look to non-core assets as it is a source of capital to fund those an office and we'll we'll evaluate those decisions is those new investment opportunities come along, you know, in the meantime the you know the assets that you referenced there continues to be some opportunity wage.

value at broader lakes and

And uh in in some leasing to do so we feel we feel no pressure. There's no immediate need to to just sell but but yeah, I'm confident overtime. Our team will do a terrific job identifying New Opportunities. And so that overtime could likely lead to to sales to to match fund new Investments.

Thanks for that with regard to a hundred mil. Can you talk about the joint venture? I don't remember how that came about if they had some ownership in the land and and kind of why you move forward in a joint venture there.

It sure Dave it's a it's a 90-10 structure. And and we do have a a page in our supplement that that outlines going to the basic structure of those deals. It's it's very similar to a hundred mil as to our structure with Heinz at uh-uh at Avalon and and really the rationale behind it. Hi my team we had a great experience working with them at Avalon and as we looked at executing the project in in Tempe, we've got we've got a terrific team on the ground at uh-uh in Tempe. We do not have any development or construction Personnel on the ground and in Heinz does and so we felt like bringing the the two organizations together with our leasing team there and in our operations team and and will Cryer is our managing director. I think it's a it's a really good relationship to 2 a.m.

delivered Hinesville

Development and Construction expertise

Okay, two more quick ones for me. What made the North Park land non-core for you guys cuz obviously like that asset quite a bit and then the last question would just be maybe for Richard on on NASCAR am now that they're going to under a year in terms of exploration. Have you given any updates on their potential date?

The the land at North Point that that you referenced is is is a legacy holding for quite some time and it really is a a Suburban a piece of property that you know, I think over time I wouldn't be surprised if the new owner that is, you know, ultimately delivered something outside of office is probably the highest and best use so for our core business today just didn't make sense for us to continue to own that.

Yeah, and in in terms of answering your question on NASCAR, you know it is it is a little over a year out maybe pushing year and half but we're already talking to him. I might imagine and engaged in discussions. It's still a little early for them though. I'd say that just looking at that situation in general. It's it's a great building. Um, and and this does represent an office headquarters, you know, the building is named NASCAR Plaza and the Hall of Fame is connected to it. So we feel good that that you know that that situation continue to evolve in a positive way.

All right. Thank you both.

This concludes our question-and-answer session. I would like to turn the conference back over to call and Connolly for any closing remarks.

Thank you all for your time today and participating in cousins fourth-quarter earnings call. The team is excited and energized for a productive 2028 or phone is we're always available over the phone if if you have questions, and we'll look forward to seeing many of you all over the course of the Year. Thank you.

The conference has now concluded thank you for attending today's presentation. You may now disconnect.

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