Q4 2020 Cousins Properties Inc Earnings Call
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I would now like to turn the conference over the Pamela Roper. Please go ahead.
Good morning, and welcome to cousins properties fourth quarter earnings Conference call for me today of Colin Connolly, Our President and Chief Executive Officer, Richard <unk>.
The vice President of operations, and Greg <unk>, Our Chief Financial Officer. The press release, the supplemental package were distributed yesterday afternoon, as well as furnished on form 8-K and.
In the supplemental package. The company has reconciled all non-GAAP financial measures for the most directly comparable GAAP measures and of course ranking requirement.
If you did not receive the copy. These documents are available through the quarterly disclosures and supplemental SEC information link on the Investor Relations page of our website cousins Dotcom safety.
Please be aware of that certain matters discussed today may constitute forward looking statements within the meaning of the federal securities laws and actual results may differ materially from these statements due to a variety of risks uncertainties and other factors, including the risk factors set forth in our annual report on form 10-K, and our other SEC filings in particular, there are significant risks and uncertainties related to the.
The verity in duration because of 19 pandemic and the timing of the strength of the recovery there from 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 the detailed discussions of the potential.
Yes.
And in our filings for the SEC for that I'll turn the call over to Colin Connolly.
Thank you Pam and good morning, everyone.
2020 was an extraordinary year the.
COVID-19 pandemic arrived swiftly in our lives changed almost overnight.
As I said in May of last year.
These don't build character they reveal character.
We value our employees, our customers and our communities.
I've been so proud that our dedicated team has ably navigated the pandemic, while consistently providing our customers with the same excellent service. They expect from US every day.
In addition, cousins gave back to our communities as we committed $900000 from our nonprofit foundation to support we're gonna organizations focused on COVID-19 relief and important social justice causes.
Before addressing our long term outlook I wanted to provide a few highlights of our solid fourth quarter results.
On the operations front.
The teams delivered <unk> 68 per share and <unk> with.
With second generation cash rents of eight 9%.
We leased 387000 square feet and collected 99% of total rent, including 99% from our office customers.
In addition, we.
We took advantage of the economic uncertainty and made several investments in the south end of Charlotte, including our acquisition of the Railyard for $201 million and two fabulous land sites totaling five six acres in aggregate.
These significant investments in Charlotte, we will provide a solid foundation for growth in that dynamic city for years to come.
Cousins was well prepared to weather challenging times with a simple yet compelling strategy that enabled us to operate effectively throughout the year.
Let me highlight the core principles of our strategy.
First to build the Premier urban Sunbelt office portfolio.
The second to be disciplined about capital allocation and focus on new investments, where our platform can add value.
Third and importantly to have a best in class balance sheet.
And finally to leverage our strong local operating platforms that taken the entrepreneurial approach in our high growth markets.
We have made significant strides in progressing this strategy.
Today.
We have the leading trophy portfolio in the best Sunbelt Submarkets of Atlanta, Austin, Charlotte, Dallas, Phoenix and Tampa.
Second we have a terrific development pipeline of $449 million debt of 77% pre leased and attractive land sites, where we can build an additional 5 million square feet.
Our balance sheet is strong with net debt to EBITDA of four eight times.
And G&A as a percentage of total assets at <unk>, 3%.
Both are among the best in the entire office sector.
While the pandemic persists, we are starting to see early signs of hope with the promise that vaccines offer.
As we approach the other side of the health crisis our.
Our conviction around our Sunbelt Trophy office strategy has only grown let.
Let me share why.
Our strategy has positioned cousins at the intersection of two powerful trends driving the office sector.
The migration to the Sunbelt and a flight to trophy properties.
While these trends were underway before COVID-19.
There are likely to accelerate.
For example.
The topside migration states from 2019 through 2020 for.
For Texas, Florida.
Arizona, North Carolina and Georgia.
While the bottom five states, where New York, Illinois.
California, Michigan and Pennsylvania.
We've also seen announcements of relocations and large expansions, including Oracle CBRE and Amazon.
In fact, 2020 was a record year for corporate relocations and expansions in Austin with 39 companies that announced plans to add nearly 9900 jobs in the greater Austin area.
And in Atlanta, just yesterday Mike.
Microsoft confirmed it had purchased 90 acres in west Midtown with plans to build a major employment hub, which will include thousands of new office using jobs.
We believe that we are only in the early stages of this geographic shift.
I am confident we will see additional large relocation and expansion announcements later this year we.
We hope to directly benefit from some of these situations, but regardless of these moves will further validate the importance of the office to companies in the power of our sunbelt footprint.
And to be clear innovative companies arent relocating from California to Texas, Georgia, and North Carolina to work from home.
Looking forward to 2021, let.
Let me share some of our top priorities.
First we are focused on creating value in our existing portfolio, including making leasing progress and our larger blocks of space.
Second.
We will look for opportunities to upgrade the quality of our portfolio through strategic acquisitions with properties that reflect the office of the future the.
An example of this is our recent acquisition of the rail yard in Charlotte.
We will likely fund these with the sale of older vintage higher Capex properties.
As I said last quarter, we will not always be able to time, our buys and our sales concurrently which could on occasion create short term earnings fluctuations.
However, our creative deal, making is a differentiator and integral to driving long term earnings and NAV growth.
Third we will continue to prioritize and appropriately sized land bank to meet customer demand for new experiential properties in the best locations.
Lastly, we will continue to identify new office and mixed use development opportunities with an eye towards pre leasing.
However, we will also selectively consider development opportunities with speculative components and.
In unique markets like the domain in Austin, where fundamentals and in migration are so strong.
2021 is the transition year for cousins from an earnings perspective.
Our financial results will reflect several known move outs from recent value add acquisitions like $33 50, Peachtree 1200, Peachtree in Atlanta as well as the Bank of America Plaza building in Charlotte, which is now known as <unk> at the Plaza.
Clearly the COVID-19, pandemic and associated Lockdowns delayed or re leasing of releasing efforts how's.
However, with the vaccine rolling out we are seeing restrictions ease and revived customer interest.
We are eager to begin executing our business plans to reposition these exciting projects.
Our strategy remains intact the <unk>.
Properties are in the right markets and the trends are in our favor.
As we look to 2022 and beyond these value add investment opportunities are a terrific source of value creation.
Combined with our existing and future development pipeline.
<unk> is uniquely positioned to deliver long term growth for our shareholders.
Importantly, we of the right balance sheet with low leverage and ample liquidity to capitalize on the opportunities.
Before turning the call over to Richard I want to thank our dedicated talented and flexible cousins team, which has continued to work hard each day under the toughest circumstances over the past year the.
They always rise to the occasion for.
Providing excellent service to our customers and apply their talents to make our company stronger.
I am proud to be part of cousins.
Richard.
Thanks, Colin and good morning.
We reported solid fourth quarter operating results delivering a constructive close to a year of that presented every one of US was truly historic challenges to overcome.
As I've done for the past couple of quarters.
I'll begin by updating you on general business conditions first an update on customer utilization within our 20 million square foot operating portfolio.
Utilization continues to track at an average of approximately 20% across the company squarely in line with our reported levels of last October.
Given the widespread of increase in Covid cases over the past couple of months, we view steady utilization through this period is encouraging.
Like last quarter, we sense that utilization will not move materially higher until the second half of 2021.
And should be highly dependent on vaccination efforts.
Rent collections were consistent and strong again this quarter, we collected 98, 8% of rent from all customers and 99, 2% of rent from office customers in the fourth quarter.
Collections are running at comparable levels, so far in 2021 as well.
We also continue to have very few ongoing rent deferrals, which are at this point largely limited to our retail customers.
In the fourth quarter rent deferral agreements represented just <unk>, 3% of annualized contractual rents and we're only one 5% of contractual rents for all of 2020.
Now, let's turn to operating results.
Our total portfolio ended the fourth quarter at 98% leased with our same property portfolio at a solid 92, 7% leased.
Total portfolio of weighted average occupancy held steady this quarter at 94%.
In the same property portfolio moved up to 92, 4%.
As Colin already referenced we expect 2021 to be a transitional year for cousins, including occupancy.
While only eight 5% of our annual contractual rents expire in 2021, our operating portfolio includes value add investments with known 2021 pending vacancy such as 1200, Peachtree and $33 50, Peachtree in Atlanta, and one south of the Plaza in Charlotte.
The final 169000 square feet of Bank of America space at one south expired at the end of 2020 reps.
Representing about 90 basis points of the portfolio occupancy.
So we will see a lower weighted average occupancy beginning of the first quarter of 2021.
I would also note that in the late 2021, our occupancy will reflect the positive impact some known commencements from new deliveries, most notably at the domain in Austin.
In short occupancy will be lower in 2021 compared to 2020, but as Colin said, we have a great opportunity to create long term value as we lease up these blocks of space.
The top of that we have only 8% or less of our annual contractual rents expiring in each year through 2024.
As expected the pandemic once again impacted quarterly leasing volume with the new activity slower.
With that said, we saw an encouraging bounce on overall activity of this quarter.
In all we executed over 387000 square feet of leases during the fourth quarter and over $1 4 million square feet of leasing for the year.
Notable leases in the fourth quarter included of renewal of NASCAR and NASCAR Plaza in Charlotte.
And the renewal and expansion of Amazon of Terminix and Atlanta.
After quarter end, we also signed a new lease at our 100 mill New development in Tempe.
Our average lease term of this quarter was a healthy six six years and it was seven years for the full year.
Our average lease term was fairly consistent between new and renewal activity and was not meaningfully different than our three year pre COVID-19 run rate of seven five years.
Lease concessions defined as free rent and tenant improvements for $4 15 per square foot per year of this quarter.
Below a rolling eight quarter average nonetheless, we continue to fuel the most lease negotiating pressure around concessions.
Rent growth within our portfolio has remained strong, especially for operating in the pandemic with second generation net rents increasing eight 9% on a cash basis for the quarter and 13, 1% on the cash basis for the year.
With solid with solid rent growth and lower than normal concessions in this past quarter. Our average net effective rents came in at $25 19 per square foot, we have printed higher net effective rents and only three other quarters since the beginning of 2018.
As we look ahead, despite continued headwinds and overall vacancy and sublease availability. There are hopeful signs in each of our markets that meaningful economic recovery is possible as the year progresses.
Let me provide some examples.
There has been a clear ramp and the major sunbelt job and office relocation of announcements oracle's relocation of Austin.
Microsoft sizable new East coast hub in Atlanta, and Pfizer's growth commitment and Tampa to name just a few.
Per Costar, Uptown, Charlotte and Tempe, still have notably low class a vacancy rates of seven 7% and six 9% respectively. These would be great launching off points emerging from a recession.
For <unk>. There are currently over five 4 million square feet of tenant requirements in the market in Austin.
40% of these requirements are focused on the CBD and northwest domain.
Also per Gol employees in Dallas of return to the office faster than the rest of the country at almost 40% in December this compares to only 10% to 15% in the coastal markets, even more impressive both Dallas and Austin are already back above pre COVID-19 employment levels.
Across the board it is becoming clear that physical office space will remain important as we emerge from the pandemic occur.
According to a recent Pwc study, 70% of executives expect for their real estate footprint to stay the same or grow over the next three years due to the rising head counts and social due to rising head counts of social distancing.
And one example of the sentiment Google CFO said during the company's most recent earnings call that when they look ahead of the company quote expects to return to a more normalized pace of ground up construction and the fit out of office facilities.
It does not get any clearer than that now.
Now some color on our leasing pipeline.
While we had a pause during the fourth quarter with Covid and seasonal headwinds early stage interest and inquiries have noticeably increased again since the beginning of the calendar year.
Signaling the company's now seem willing to begin the process of making longer term real estate decisions the.
The most noticeable upticks in inquiries and activity have been in Austin Midtown.
The Midtown and Buckhead in Atlanta and Tampa.
Economic development teams in every one of our markets are still signaling high optimism, noting of they're as busy as they've ever been.
As I said last quarter, though keep in mind that early stage activity can often take multiple quarters to evolve.
In summary.
We enter a transitional 2021 with the sense of renewed optimism, albeit cautious for what lies ahead.
Before handing off the Greg.
Want to say, how proud I am of all of my cousins teammates who have responded to this pandemic with amazing competence resilience and hard work. Thank you for all of that you did to make 2020 of success.
Greg.
Thanks, Richard Good morning, everyone.
I'll begin my remarks by providing a brief overview of our quarterly financial results.
Including some detail on our same property performance, our development pipeline and our transaction activity.
Followed by a quick discussion of our balance sheet and dividend for closing my remarks with information on our outlook for 2021.
Overall fourth quarter numbers were solid and of held up relatively well since the onset of the pandemic.
<unk> was 68 per share for the quarter and $2 78 per share for all of 2020.
Same property cash NOI growth remained positive during 2020 at 0.7%.
And it was up a very solid for 5% when adjusting for COVID-19 related to rent deferrals and parking losses.
Most impressive is all as Richard said earlier was that we increased cash rents on expiring leases by over 13% during 2020.
Focusing on our same property performance cash net operating income during the fourth quarter declined three 3% compared to last year.
Driven by a 4% decline in the revenues and a five 2% decline in expenses.
Adjusting for Covid related to rent deferrals and parking losses same property cash NOI actually increased one 7% during the fourth quarter.
Before moving past same property performance I wanted to take a moment to highlight the outstanding work done by our property management teams with controlling expenses during the pandemic.
For all of 2020 same property operating expenses were down 6% compared to 2019.
And excluding property taxes expenses were down almost 10%.
These are terrific results during challenging times.
Turning to our development efforts, one asset domain 12 in Austin.
Was moved all of our development pipeline schedule during the fourth quarter as economic occupancy at that property exceeded 90%.
The remaining development pipeline represents of total cousins investment of $450 million across one 5 million square feet and five assets.
Our remaining funding commitment for this pipeline is approximately $125 million, which is more than covered by our existing liquidity and future retained earnings.
On the transaction front, we closed three acquisitions during the fourth quarter the purchase of the Railyard, the Charlotte for $201 million as well as the purchase of two land parcels in Charlotte for $47 million.
In addition, we sold our interest in two small non core land parcels that the company acquired over 15 years ago. When the strategy was decidedly different than it is today.
Incurring a loss of approximately $750000.
One parcel was the residential tract in Texas.
And the other was the golf course in Georgia.
With the completion of these sales only one non core parcel remains in our land inventory.
Track, the North Atlanta adjacent to a shopping center, we developed and subsequently sold over eight years ago.
Looking at the balance sheet, we entered this period of volatility with outstanding financial strength among.
Among the very best of our office peers.
Not only do we have low leverage our liquidity position is strong and our dividend remains well covered the.
The only near term debt maturity is a construction loan at our Carolina square property in Chapel Hill.
We've selected the lender and anticipate closing of new five year floating rate loan on this asset in the next few weeks.
Before discussing 2021 earnings guidance.
Wanted to highlight an asset that we have moved to the held for sale classification as of year end.
As we've previously discussed our Burnett Plaza property in Fort worth is of non core holding for us.
It was acquired as part of the larger tier REIT transaction in mid 2019.
We are actively pursuing the sale of this property, which will hopefully close during the first half of the year. However, the completion.
And timing of the sale remain uncertain.
Per GAAP, we have marked the value of Burnett plaza down to reflect the current market valuation. This.
This impairment reflects approximately a 6% decline in value for the asset which is not surprising considering the disruption to energy markets. Since we closed the tier transaction the year and a half ago.
Looking forward, we are providing initial 2021 and <unk> guidance of between $2 76.
And $2 86 per share.
No acquisitions dispositions or development starts are included in this guidance if any transactions do take place we will update our earnings guidance Accordingly.
Please also note that our earnings guidance assumes physical occupancy will remain significantly below normalized levels until the second half of 2021.
As a result quarterly earnings are anticipated to gradually increase as the year progresses.
Finally <unk>.
Don't forget that year over year comparisons on all performance metrics, including earnings won't be perfectly claim during the first quarter of 2021.
It'll be a bit of an apples and oranges comparison for 2020 during the first quarter as the impact of Covid really didn't kick into our numbers until the second quarter of 2020.
With that let me turn the call back over to the operator for your questions.
Okay.
We will now begin the question and answer session to ask a question you May Press Star and then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time of your question has been addressed and you would like to withdraw your question. Please press Star and then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Blaine Heck with Wells Fargo. Please go ahead.
Great. Thanks, Good morning, guys.
As you mentioned in your prepared remarks, you guys got some good news this week with Microsoft confirmation of plans to make Atlanta their east coast hub.
Maybe for carload of Richard can you just talk about that West Atlanta, Bankhead Inquiry Park, Submarket and whether you guys would consider making any investments in that area that might benefit from from Microsoft's activity.
Well first let me just say.
Good morning plain and.
We were thrilled to see the announcement from Microsoft.
Yesterday, we had some idea of that that was in the works and.
I think it's going to be terrific for the overall city.
Including the west side of Midtown.
The step back and really look at.
Microsoft decision and what drove them to two announced this large hub because the testament to the city as a whole and they certainly recognize the technology talent that is here in Atlanta, but they also recognize the diverse.
The composition of the talent base in Atlanta, and so I think they want to align themselves with that and continue to grow their company here and I hope and I think we will see other companies follow suit. So as that project unfolds out on the west side of the town will continue to watch that there are some other projects underway as well.
And we will continue to monitor that.
And look for investment opportunities, if we think of warrants.
Alright, great Thats helpful color.
Secondly, can you just discuss the interest in the bank of America space in Charlotte I think you guys had a little over 200000 square feet of move outs, thus far.
That's not one of the markets that Richard pointed out where youre seeing an uptick in inquiries, but I guess based on any interest that you have there do you have any sense of how long we should expect a return to kind of stabilization to take in and how many of tenants do you envision that.
Net space.
Sure I'd be happy to this is Richard I'd be happy to touch on that really quickly I think you are right I didn't call out of Charlotte specifically as being.
One of the more noticeable upticks in inquiries and activity.
But that's not to say that there isn't good early stage activity I would say that's actually been one of the most of.
Optimistic economic development areas, I think they're getting a lot of inbounds in Charlotte.
And so we do have.
I'd say the pipeline right now for for one south is a mix of smaller.
Customer potential customers, whereas when you look at Atlanta, where we've seen really good activity recently in Buckhead and Midtown.
As more of a mix of of full floor to the.
Multi floor users so larger users. So again, Charlotte, we still feel really positive about about the prospect of being able to create a lot of value at one south.
And.
Depending on the on the pace of the economic recovery of vaccination efforts.
And these new kind of tire kicking efforts of inbounds in the Charlotte and other internal moves.
The pace of that stabilization as is anybody's guess, but we feel great about about long term.
Rolling up rents, there and creating a lot of value Blaine I would just add that as you look at Charlotte.
In Uptown in particular that the large banks.
Really drive that market and they have been I'd say more on the cautious side of reopening.
Their offices and I think that has.
Perhaps impacted the pace of leasing activity kind of picking back up in Charlotte, but as Richard mentioned as we think about that market over over the longer term in our fast forward a quarter or two we have a lot of conviction in the market and I think thats certainly highlighted by our acquisition of the rail yard.
And really one or two terrific sites in the south and the.
Of Charlotte that will accommodate we think some pretty interesting and attractive office and mixed use projects. So we're believers in the long term for share.
The one other thing I'd just quickly reiterate I mentioned in my remarks, but Charlotte Uptown in particular does still have a phenomenal.
Sub 10% vacancy rates so.
The market overall in Uptown in particular are going to be very well positioned.
When things do pick up.
Alright Thats helpful.
Then lastly for me with all of the news around Parsley energy and they're being acquired by pioneer and the associated layoffs have you guys had any recent discussions with carefully about their space needs and maybe interest in subletting any additional space.
Great question Blaine and.
Again, we're thrilled that we've now delivered 300, Colorado, It's a fantastic project again, I think very reflective of.
The office of the future, but obviously, partially who has been a long time customer of ours and great friends of ours were purchased by pioneer and that project has closed and they have put.
The entirety of their 300000 square feet on the sublease market, but again as we touched on our prepared remarks of Austin is seeing a significant inbound.
The significant inbound activity that that is Scott interest in the market and the whole, but I think youre seeing some particular interest in the CBD and <unk> out in the northwest.
So we're in a terrific situations, we've got a we've got a long term lease.
With the investment grade customer and but we will continue to have dialogue with them and if there are situations that into it.
It's a great outcome for pioneer and a great outcome for cousins, we'll absolutely consider those and I think we're already seeing some of those opportunities come our way.
Great. Thank you guys.
Okay.
The next question comes from Dave Rodgers with Baird. Please go ahead.
Yes, good morning, Richard maybe you wanted to start with you.
Done a lot more leasing in terms of renewals in the quarter. As you mentioned I guess what are tenants primary concerns as you sit down with them today to talk about I mean is it is it really safety as it just locking in good space are they worried about kind of the configurations or is it really just kind of moving forward.
At a pace that the more normalized because the economics certainly don't reflect.
And the amount of major concern it doesn't seem like the kind of one of those conversation of it sounds like.
That's a really good question, you're right the economics at least in our statistics.
In 2000, and kind of looking at our pipeline are not meaningfully different.
Covid the Brito of in fact in some ways I should say of approved so.
I would say that in our conversations with customers.
It really runs the gamut I mean, one of our volume is still lower than pre COVID-19. So there's not nearly as much data to kind of dig into and try and spot trends, but what I think people are most.
The concern right now with with configuration of space with how they might change.
For the new normal if you will and I think around that it tends to be again. This is a gross generalization, but it tends to be how do they potentially experiment with with hotel in our hot desking.
Even appropriate for it depends from company of the company and their culture and the review of the collaboration and how that works.
There is less of a focus I would say on.
<unk>.
Implementing new technology around around.
Wellness and air quality, but I think thats still being on the front of mind and that will eventually come to fruition, but theres not a lot of hard pressing in.
And hand wringing over that so it's it's really at.
At the end of the day I think just like before Covid every company is a little different with regard to their decision, making how the.
They view of collaboration and culture and that that really more in what they do or frankly as a business dictates more of how they think about their space than anything and that really hasnt changed in my opinion.
Yes.
No real change in kind of tenants seeking to maybe get the option to opt out of space at a certain point in time.
We will pay of the economics, but maybe we can get out early or anything like that.
Sure sure everybody certainly it would like flexibility.
Is it.
Is it.
If we were the five is it a 10 no I mean, I think we've seen some some more asks for flexibility, but it really hasnt been meaningfully different day.
I'd just add it's Colin when you look at our.
The term on the leases that we've completed through through Covid. It really has continued to average about six and a half years and pretty consistent.
With our overall run rate and where I think we continue to see.
The trends accelerating in our discussions with customers is really a flight to higher quality properties better of monetized properties more experiential properties and we think we've got a lot of product that meets that.
That meets that demand, but but I think youre seeing many customers take a little bit of a wait and see approach in terms of major reconfigurations to their space to really hopefully get through the next couple of quarters get there their teams back in the office and then positioned themselves to make.
Any long term changes.
That's helpful. I appreciate all of that color.
Colin maybe with you again.
On the build to suit discussions I mean, obviously, we will continue to be opportunistic I think even mentioned the select speculative opportunities, but I guess talk about the one of those discussions look like today.
How they have evolved over the last three or four quarters in terms of build to suit or development oriented discussions for customers.
Yes, no great Great question, and I think we're now getting to the point in.
Kind of the Covid experience, where it's realistic to start having some of these conversations about actual transactions and opportunities and as I look back to much of last year. There are a lot of discussions.
But it might be of discussion with somebody who's in California, Illinois, and Theyre unable to actually get on a plane and come down and get on the ground. So it's hard to hard to execute those type of transactions over zoom is as we can now hopefully.
With the successful vaccine rollout look to the other side I think there are going to be opportunities to identify and hopefully execute on some build to suit opportunities and I think what's interesting.
As you look at a lot of these large corporate relocations, maybe out of the west coast or the Midwest into the Sunbelt, we are seeing an increase in desire for for large companies to control their own space.
Where they can control the environment. They can control the security and our hope is that that will lead to again more build to suit opportunities, but we will as I mentioned the.
Look at and.
And evaluate some opportunities that have some speculative component that I think will be targeted and focused on.
Of particular markets and Submarkets like the domain.
Last on the activity of 100 mill do you of any additional details on that Richard I think you mentioned in your script, but I've been here and the details on that.
Sure. It was out of smaller lease 10000 square feet I think the context, there is a customer.
Was an existing customer of our portfolio with Hayden ferry and.
We needed to accommodate and wanted to accommodate an expansion actually of Silicon Valley Bank there in those customers.
<unk> was was excited about the opportunity the moves over 100 mill to accommodate that other expansion.
Okay, great. Thank you.
Thanks, Dave.
The next question comes from Michael Lewis with <unk> Securities. Please go ahead.
Thank you.
Craig you mentioned the per day.
Plaza property of for sale.
Should we expect debt market anything else this year.
Scott the one asset in Houston right now.
A couple of them.
Okay.
And Chris I don't know if youre interested in.
Hello.
Those are.
We're acquiring your partner's interest.
Hey, Michael Thank you and good morning.
No our balance sheet, it's been kind of running where we want it for an extended period of time. So if we saw something that won't be the fixed the balance sheet of a beat to funds at a more attractive investment opportunity and so I think sales will depend upon our ability to identify a dose of investment opportunities.
Okay.
<unk>.
My second question, the New York Urban obviously is not the same as Charlotte or Karen.
But I thought it was interesting yesterday of equity equity residential talk about balancing the urban exposure with more suburban.
Could you coming out of the pandemic.
<unk> desire to do that at all and then the other thing the apartment guys are doing is targeting the Denver and South Florida, a little more current.
Our partners are going there.
For the first become more attractive potential of sockets as well.
The great questions Michael the.
As it relates to urban versus suburban.
Wholeheartedly agree that there is a difference.
Suburban Charlotte and suburban New York, and I'd say, the biggest kind of structural difference is the.
Given the.
Well I'd say the structural challenges of getting from suburban New York and debt Manhattan versus Charlotte suburbs into in the Uptown Charlotte there is kind of.
As far fewer barriers.
To move between the urban and suburban Submarkets and so as we've looked at the market and we studied the data.
In our markets and we just have not seen.
<unk> choosing to to look to.
The move outside of the urban core where they are well monetized and experiential can attract the type of.
Of young talent that they want to more commodity space in the suburbs and really the data back to the Costar put out a study not too long ago and looked at demand both in the urban markets in suburban markets net nationally and there really was no difference in 2020 relative to kind of prior P.
Pandemic year, so we're going to continue to focus on.
Again, the highest quality most of monetized assets that really are going to attract the talent that net growing and innovative companies one.
As far as looking at other markets, we're always paying attention to kind of demand drivers and again were growing companies are looking to locate in many cases. They are following the talent and you are seeing the population move in talent move to places like South, Florida and Denver.
So those are clearly on our radar and we'll continue to watch that play out there are other markets that net fit that bill as well, including Nashville and opportunities to expand for us in places like Raleigh Durham or.
The Dallas, where we've got a small presence today, but we would hope to see that grow over time as well.
Okay, and just one more.
Colin you said something interesting about companies are not relocating to your senior markets for work from home.
That's interesting because maybe the right. So if everybody is going to work from home maybe boost the headquarters from New York for San Francisco, Atlanta employees do whatever they want so.
It would still be a net positive, but maybe it doesn't settle the work from home debate and so.
Does this new environment change the way, we look at relocation activity should we be a little careful about that because the may be attractive to mercury headquarters there, whether you want to work from home or not.
What are your thoughts yes.
Yes, again, I would just look to the to the.
The specific specific examples of kind of what's happening and again, if you look at Oracle moving their corporate headquarters to Austin right. They purchased hundreds of acres of of.
Of land just outside of the.
Downtown.
The weight of the airport.
The <unk> campus.
And again I would point to the most recent announcement.
Yesterday from from Microsoft to build a large regional hub.
And that came with a purchase of 90 acres of land and I think their intent is to put that into production and build.
Offices, along with things like affordable housing and retail and other enhancements to the community. So I think their actions are demonstrating that debt theyre committed to.
Creating an environment to bring their teams and their and their people together.
Our sense as you look at some of the office debate over the past year, and what you're hearing and what Youre seeing our many employees who are and companies who are frustrated.
Bye.
The cost of living in certain markets, which is leading to very challenging commutes in and out of out of the office and I think when companies have recognized over the last year is that there are clearly benefits to having their team together.
The building their culture of collaborating and mentoring in person, but perhaps the lesson of Covid is you don't have to be singularly focused in one market like San Francisco or Seattle, or New York, Perhaps you can distribute that workforce across other markets in the country that offer a lot of the same amenities and quality.
The life.
But perhaps come with with shorter commutes and lower cost of living.
Makes sense. Thank you.
As a reminder, if you have a question. Please press star and then one to be joined into the queue. The.
The next question comes from Jamie Feldman with Bank of America. Please go ahead.
Great. Thanks, and good morning, Greg I was hoping to start with you on the guidance can you and maybe get a little bit more color in terms of how you thought about the assumptions for the year.
Can you maybe walk us through the occupancy by quarter and what Youre, assuming for some of the large lease ups of the large vacancies that you guys had and whether there's any impact on 'twenty one.
Hey, Jamie Good morning, I appreciate the question.
That level of granularity around occupancy behind our guidance is something we didn't provide pre COVID-19 and with the uncertainty that Covid has introduced we're not comfortable providing good day as the year as the year progresses, we anticipate giving more.
For details behind our guidance.
But we thought it was important right now to actually step up to the plate and provide a baseline for you and I think that's what we've done with the guidance that we've provided.
Jamie as it relates to the the blocks of space that we have again, we hope to make great progress leasing some of that space. This year, but if you kind of work backwards, the Norfolk southern space that doesn't expire until it's until the end of the year. So.
And then as you look at the debt.
Anthem space at $33 50, we actually don't get debt back until June of.
Of this year, so realistically by the time.
Youre able to lease that space kind of build it out with tenant improvements and fit it out.
I wouldn't see that being either of those being an impact in 2021. We're obviously have some of the bank of America space now back.
Our hope is we can we can make some progress in that particular building over the course of the year of as I mentioned earlier, the Charlotte has been.
Slightly slower and its and its good resumption of activity than perhaps the Atlanta, and Austin, Tampa, and Dallas, App, but we hope to make some progress.
And I think hopefully the and that would be reflected in our numbers in Charlotte.
Okay.
Maybe if I can ask it another way when you thought about guidance what are the biggest variables that really could swing numbers in either direction for generally and then.
In terms of the Fort worth sale is that included in your guidance.
So Jamie it's Greg again clearly the.
The biggest lever in 2021 to our guidance would be the pace.
Of the recovery from the Covid pandemic.
And there is light at the end of the tunnel no doubt about it but I think theres a lot of question marks around how we get from here to there and so that's going to be the biggest lever in terms of.
Of our earnings guidance and whether it goes up or down from here in terms of in terms of the Burnett Plaza sale.
That is not included in our guidance no transactions are included in our guidance and they are not included because they are not certain at this time.
We're in the midst of the Covid.
Pandemic.
Typically we don't we don't identify sales until they actually happen for.
For this exact reason so there's nothing unique about for debt other than the fact that were some of the midst of COVID-19, which enters a new level of uncertainty. So it is not in our numbers.
If we follow through and if we if we're able to sell it in the first half of the year like we hope we will we will adjust our guidance accordingly at that point.
Okay. I mean do you see I know you had said that you would maybe find acquisitions.
If you get some sales growth.
Do you I mean do you think I think it will be dilutive for the numbers or do you think there's any way you can.
Normalized fad or neutralize that.
Okay.
I'll jump in the contract it all depends on what we do with the proceeds right.
And as Colin said I mean, we're out there aggressively looking for acquisition opportunities and we think we're going to Pfizer and hopefully don't know that we do have anybody have any at this point, but we hope we will and so when you look at specific solution from a specific disposition. It all revolves around what you do with the proceeds.
Yes, Jamie it's as I said in my prepared remarks.
Obviously, we can't we can't always perfectly time.
The sales and the buys.
But.
And that could create some short term fluctuations in earnings, but we are over time very focused on continuing to upgrade the quality of the portfolio.
Kind of newer vintage buildings of the future debt do carry a lower capex profile and I think we've proven ourselves to be.
The creative operators and investors to find those opportunities and make those investments and so as we look at the market today, we're hopeful.
As we did in December with the Railyard, we're hopeful to continue to identify opportunities to deploy capital into the into acquisitions and potentially some development opportunities as well and I think if we're successful doing that.
Put the quarter to quarter aside I think we're we feel very enthusiastic about our ability to drive kind of earnings growth and NAV growth over the long term.
Okay.
And then last for me Colin you used the term office of the future experiential.
Several times on this call, including that last answer.
Is the opposite of the feature in your mind it looks like the Charlotte building you just bought is more of a low rise high amenity.
You've got of land nearby which means it's a little more campus the feeling our neighborhood appealing.
You're most of your portfolio is kind of infill towers.
Do you see of shift here.
When you use the term office of the future of what exactly does that mean.
No I wouldn't I wouldn't characterize our portfolio has a bunch of towers I think our average square footage.
It's about 350000 square feet and I think as you look across our portfolio and the kind of the office of the future. We've been this isn't a trend.
Does that.
That that's just emerged over the past year. We think this is a trend thats been going on for quite some time and that's why we've positioned the company the way we have and so we feel like we're we're.
Where the puck is heading and that is product like the railyard or what we're doing at the domain 300, Colorado.
100 mill.
We think the portfolio is very very well positioned for that and I think that building of the future.
It is more experiential it has more amenities, it's got more areas, whether it's at the ground plane or outdoor plazas rooftop space fitness wellness.
Amenities opportunities candidly were.
Our customers employees have places too.
To get outside of their specific floor and be together and collaborate and.
And create an environment, where they can both kind of work.
In play and I think we see more of that coming and we've been hard at work for years to position ourselves at the intersection of that trend along with this migration that debt continues to accelerate.
Okay, sorry, and just one more.
What do you think the mark to market looks like for your 21 exploration.
Well Jamie.
Again, our crystal ball in the midst of the pandemic is perhaps not as clear.
As it is at a normalized environment, but we've always felt like the portfolio was 8% to 10%.
The below market and.
Certainly quarter to quarter, what we deliver is entirely.
Incumbent upon what the particular mix of leasing is in any quarter, but as Richard alluded to earlier, we've been successful.
The holding our face rents and we certainly we've seen some pressure on our concessions, but we've seen face rents holdup, but at 8% to 10% kind of pre pandemic. Even if there is some erosion in rental rate. We think we've got we've got some attractive margin there too where we're cautiously optimistic.
That we can continue to deliver.
Positive mark to markets.
Okay. Thank you.
Thank you Jamie.
This concludes our question and answer session I would now like to turn the conference back over to Colin Connolly for any closing remarks.
I want to thank you all for joining US this morning, and your continued interest in cousins properties I wanted to once again, thank all of my teammates on the phone for your continued hard work.
In support of the company and flexibility and we will look forward to seeing many of the investors at some of the upcoming.
The investor conferences over the next month. Thank you all and have a great weekend Stacey.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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