Q1 2021 Cousins Properties Inc Earnings Call
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Yes.
Good day and welcome to the cousins properties first quarter conference call all participants will be in a listen only mode.
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After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now like to turn the conference over to Pamela Roper General Counsel. Please go ahead.
Thank you good morning, and welcome to cousins properties first quarter earnings Conference call with me today are Colin Connolly, our President and Chief Executive Officer, Richard Hickson, Our executive Vice President of operations from Greg and FEMA, 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 for the company has reconciled all non-GAAP financial measures. The most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy. These documents are available through the quarterly disclosures and supplemental SEC information link on the Investor Relations page of our website cousins Dot com.
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, 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 severity and duration of the COVID-19, pandemic and the timing and strength of the recovery there from the.
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 on the supplemental package posted yesterday and a detailed discussion of some potential risks, including those posed by COVID-19 is contained in our filings with the SEC with that.
I'll turn the call over to Colin Connolly.
Thank you Pam and good morning, everyone.
Over a year ago, COVID-19 emerged swiftly.
On our entire world changed nearly overnight.
As we Mark a year later.
I'm sure I share with many of you a feeling of hope.
Debt, while the pandemic is not yet over there is optimism on the horizon with the accessibility of vaccinations.
I'm hopeful that 2021 will be a healthier happier more productive year for everyone.
Cousins was well prepared to weather the challenging year with our simple compelling strategy that enabled us to operate effectively.
The core principles of our strategy include first to build the Premier Urban Sunbelt office portfolio we.
We are focused on building concentrations in existing and potential new sunbelt markets with the best long term growth characteristics.
Second to.
To be disciplined about capital allocation and pursue new investments, where our operating and development platforms can add value.
Third and importantly, do you have a best in class balance sheet, and finally to leverage our strong local operating platforms.
With focus on an entrepreneurial approach local market relationships and community involvement in our high growth markets.
Today.
We have the leading trophy portfolio on the best Sunbelt Submarkets of Atlanta, Austin, Charlotte, Dallas, Phoenix and Tampa.
We have a terrific development pipeline of $363 million that is 79% pre leased.
An attractive land sites, where we can build an additional $5 2 million square feet.
Our balance sheet is strong with net debt to EBITDA for eight seven times.
And G&A as a percentage of total assets at 0.32%.
This strategy positioned us to perform well during challenging circumstances.
The first quarter of 2021 was no different here.
Here are a few highlights of our solid Q1 results.
On the operations front the team delivered <unk> 69 per share and <unk> <unk>.
We leased 271000 square feet with a 10, 5% increase in second generation cash rents.
We placed our 10000 Avalon development project into service.
In addition, we acquired a land parcel adjacent to our $33 50, Peachtree property in Atlanta for $8 million through a 95% consolidated joint venture.
While these results are very solid they reflect a time when vaccines were not widely available.
Now that they are we see a market that is on a strong path to recovery.
Broadly speaking our customers are shifting their plans to begin phase reopening of their offices during the summer.
With a significant ramp up likely after labor day.
This is translating into significant increase in tour activity and in our leasing pipeline.
Richard will touch on this more specifically in a minute, but we are optimistic that our leasing volume is likely to improve during the second half of the year.
It's cousins evaluate the role of the office, we look directly to our customers for feedback.
First let's look at what they're saying.
Amazon, Google Facebook, Microsoft Goldman Sachs Bank of America, Morgan Stanley I could go on.
They've all publicly communicated that their office remains core to their culture and their business.
Next one.
Let's look at what Theyre doing.
Microsoft and Google both committed to large new hubs in Atlanta, and Oracle has announced a corporate relocation to Austin and a major expansion into Nashville.
Most recently <unk>.
<unk> announced plans to create at least 3000 jobs in the Raleigh Durham area.
So what does this mean for cousins.
Large growing companies recognize the value of the office to promote culture collaboration and Mentorship.
They are migrating to the sunbelt at an accelerated pace.
And they continue to prioritize newer highly of monetized properties.
Their goal is to create a dynamic environment that excites employees to come together in person.
As we near the end of COVID-19, our conviction around our Sunbelt Trophy office strategy continues to grow.
Looking ahead to the balance of 2021, our priorities have not changed.
We are focused on creating value in our existing portfolio, including.
Including making leasing progress and our larger blocks of space.
We will also look for opportunities to upgrade our already high quality portfolio through trophy acquisitions in conjunction with compelling new development projects.
We will likely fund new investments with the sale of ultra vintage less relevant buildings.
And we are making great progress on this front and our recent investment activity is illustrative of our strategy going forward.
In December.
Cousins acquired the Railyard, a creative office asset in the South end Submarket of Charlotte for $201 million.
We also purchased an adjacent land site for a gross purchase price of $28 million.
On April 7th we sold Burnett Plaza, a 1 million square foot office property in Fort worth for a gross sales price of $137 5 million and with that exited a non core market.
Last night, we announced plans to commence construction on domain nine in Austin, where we have a growing pipeline of demand from small medium and large customers some already in Austin and some potentially new to the market.
As I mentioned earlier, we have a simple and compelling strategy at cousins.
And these transactions showcase our creativity as we execute that plan.
Leveraging our balance sheet and our development platform.
To assemble the Premier Sunbelt.
Office portfolio, which is positioned to capture outsized customer demand, while maintaining a lower capex profile.
At the same time, we are generating attractive value add returns for our shareholders by blending acquisitions and development with discipline.
As our customers' preference for trophy office accelerates.
We are responding.
As our domain nine project illustrates we're not opportunity constrained at cousins.
However, we continue to look at potential new markets in the sunbelt that benefit from continued migration of people and companies.
Nashville is one example.
Expanding in Dallas is another.
2021 is a transitional year for cousins from an earnings an occupancy perspective.
Our financial results will reflect several known move outs from pass value add acquisitions, such as 1200, Peachtree and $33 50, Peachtree in Atlanta, and one south of the Plaza in Charlotte.
With Lockdowns easing, we have begun executing our business plans to reposition these exciting projects and we are seeing leasing opportunities grow.
As we look to the future.
<unk> is uniquely positioned to deliver long term growth for our shareholders.
Importantly, we have the right balance sheet with low leverage and ample liquidity to capitalize.
Before turning the call over to Richard I want to thank our entire cousins team, who provide excellent customer service and bring their talents and dedication to the company every day.
They are the reason for our success. Thank you Richard.
Thanks, Colin and good morning, everyone.
Like all of you because its team was excited to leave 2020 behind and focus on executing in a new and hopefully more positive year, our strong first quarter operating results reflect that excitement and focus and we are very pleased with how this new year has kicked off.
As I have done since the pandemic started I will begin with general business conditions first physical customer utilization continues to track at an average of about 20% across the company.
With that said utilization is not consistent across markets or even among buildings within each market for instance, our Atlanta, Dallas and Tampa portfolios are all running at about a 30% or higher average utilization rate.
I also want to point out that activity and energy at many of our buildings even in the markets that still have lower overall utilization are building momentum with each passing month.
Whether within our portfolio or generally speaking we are hearing more and more companies planning to return to the office some capacity during 2021.
We continue to believe the back half of the year should usher and more broad based increases in utilization.
However, with the full effects potentially not being felt until 2022.
With regard to rent collections. They remains strong similar to last quarter. We collected 98, 8% of Brent from all customers and 99, 1% of rent from office customers for the first quarter.
Now, let's turn to first quarter operating results recall that in February we said 2021 would be transitional for cousins, including occupancy as expected. Our total office portfolio leased percentage and weighted average occupancy declined to 92% and 89.
3% this quarter respectively.
Biggest driver of occupancy by a wide margin was bank of Americas final phase of exploration at oneself and Charlotte, which took occupancy of this $891 per square foot project $2 57, 3%.
A second driver, albeit much smaller was the addition of our 10000 Avalon New development in Atlanta to the operating portfolio.
Adding about 50000 square feet of highly desirable first generation office vacancy.
Note that leasing interest at 10000 Avalon is very encouraging.
Looking to the balance of 2021, our occupancy will continue to trend down into the second half of the year largely due to the long anticipated 200000 square foot move out of anthem at $33 50, Peachtree at the end of June.
With that said and as we have said previously on.
While on other calls our occupancy will benefit late in the year from the positive impact of some known Commencements for new deliveries, most notably at the domain in Austin.
As for leasing activity, we executed 271000 square feet of leases this quarter.
We view this as solid volume given we are still operating in a pandemic.
I would like to share some observations about our leasing activity this quarter that we see is encouraging.
First we executed leases in every one of our core markets, which is not always been the case during the pandemic.
Not only that we executed at least one new lease and all but one core market.
We executed the highest overall number of leases since the first quarter of 2020, increasing 43% over last quarter.
And finally, new and expansion leasing as a proportion of total leasing activity increased versus last quarter coming in at 30% of our total leasing activity.
We acknowledge we are not yet back to pre pandemic form.
We do see these characteristics is reflective of a clearly improving leasing environment.
I'm also pleased to report that rent growth remained remarkably strong in the first quarter with second generation net rents increasing 10, 5% on a cash basis.
With this continued rent growth and concessions will be modestly higher than our eight quarter run rate.
Net effective rents this quarter came in at a solid $23 and <unk> 53 per square foot.
I have one more fact about our recent lease economics that I think is important to point out.
During the 12 months ended this quarter essentially.
Essentially the time horizon of the pandemic to date.
Our completed leasing activity yielded weighted average net effective rents one 1% higher than our completed activity during the 12 months, leading up to the pandemic.
This is an outstanding achievement and a difficult operating environment and is a testament to the quality of our team and portfolio.
Across the Sunbelt economic activity is recovering and expect it to be even more robust later this year and beyond.
As we've said many times migration to the Sunbelt has only accelerated through the pandemic in fact inward migration to Florida is back to over 1000 people with day not surprisingly Austin has become the top destination in the country for potential commercial real estate investment according to CBRE due to the resilience of its labor Mark.
And on outlook for steady and attractive growth further per J O L. Austin has seen twice as many new jobs announced in the first two months of 2021 than in all of 2020.
The same <unk> studied from the Dallas Phoenix and Atlanta were also among the top performing cities in 2020 with regard to overall job retention.
As I mentioned earlier in my remarks, more and more companies are announcing plans to return to the office importantly, they're also localizing the view that time together as a team and an office is critical for healthy culture collaboration and career development as a result, many major global companies build.
Longer plan to reduce their use of their offices after the pandemic.
Im sure. Many of you have already seen the recent KPMG survey that found just 17% of senior executives plan to reduce their usage of office space down from 69% in the last survey in August. This is a staggering change in sentiment to the good.
With companies now I'm willing to make longer term decisions and.
And data points like the one from KPMG, you will not be surprised to hear that our leasing pipeline has improved considerably over the past couple of months the.
For most noticeable increase in activity has been in our early stage leasing pipeline, which we define as tour and proposal activity.
Specifically this quarter the number of active proposals outstanding increased 68% and the number of space tours increased 89% compared to the fourth quarter of 2020. This is an exciting trend but please remember this is early stage activity that typically takes a number of quarters to trim.
Wait into signed leases occupancy and net operating income if at all.
While the pandemic is certainly not over we are cautiously optimistic about the balance of the year ahead of us absent a negative catalyst not seen today, our markets are well positioned for a sustained recovery and our teams in the markets. We're excited about the opportunities we have in front of us.
Before handing off to Greg I want to thank my cousins teammates. They continue to focus on our goals work hard every day and drive impressive results. Thank you to each and every one of you correct.
Thanks, Richard and 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.
Before closing my remarks from updated information on our outlook for 2021.
Overall first quarter numbers were solid and held up well since the onset of the pandemic.
<unk> was <unk> 69 per share.
Same property cash NOI declined two 7% year over year and as Richard said earlier cash rents on expiring leases rose by a very healthy 10, 5%.
For moving on I did want to highlight that we have increased cash rents on expiring leases every single quarter.
Since the onset of COVID-19 last spring with a weighted average increase of 12, 4% over that period.
Focusing on same property performance first quarter results represent a positive change in trend.
And on improvement over the previous two quarters, which average year over year cash NOI declines of three 1%.
This improvement took place despite bank of America's departure from our <unk> property that was discussed earlier.
If we pull one.
Out of our same property pool to get a better sense of performance for the balance of the portfolio.
Same property cash NOI adjusting.
Adjusting for COVID-19 related parking losses increased two 7% compared to the first quarter of 2020.
Turning to our development efforts, one asset 10000 Avalon was.
It was moved off of our development pipeline as scheduled and into our portfolio statistics schedule during the first quarter.
The remaining development pipeline represents a total cousins investment of $363 million across $1 3 million square feet for assets.
Our remaining funding commitment for this pipeline is approximately $94 million, which is more than covered by our existing liquidity and future retained earnings.
On the transaction front, we closed one land acquisition during the first quarter and one property dispositions subsequent to quarter end.
We also refinance the maturing construction loans during the first quarter.
Start with the land purchase in mid March the land parcel was acquired in bucket next to our 30 350, Peachtree operating asset for $8 million.
This transaction was completed through an existing 95, five joint venture partnership with cousins investing $7 $6 million.
Partnership already owned an adjacent parcel.
And with this acquisition now controls the entirety of what is the last surface parking block located in the core of the Buckhead Submarket often referred to as the bucket.
Subsequent to quarter end, we sold Burnett Plaza in Fort worth for a gross sales price of $137 $5 million.
In $19 83 for net deposits was 80% leased at the time of sales.
We acquired through the tier merger in 2019, and it was identified as a non core asset from the very beginning.
Proceeds from the sale were used to help fund the prior acquisition of the rail yard in the South end Submarket of Charlotte.
Finally, we refinanced the outstanding construction loan on our Carolina square mixed used property in Chapel Hill during the first quarter.
A new $135 $7 million non.
Non recourse loan was obtained replacing the original $77 million construction loan.
The proceeds from this refi exceeded the partnership's original equity contribution and our clear third party validation of the value that we create there as a quick reminder, Carolina square is held on a 50 50 joint venture partnership.
Looking at the balance sheet.
We entered this period of volatility with outstanding financial strength.
Among the very best.
Among our office peers.
Our debt maturity schedule is balance.
Our liquidity position is strong and.
And our leverage is low.
At the end of the first quarter, our net debt to EBITDA was $4 87 times.
Proceeds from the Burnett Plaza sale are not reflected on this number since it happened after quarter end.
Incorporating the Burnett Plaza sale as.
As well as the potential dimensional place sale, which I'll discuss in a moment we.
We will reduce this ratio to approximately four five times.
We also increased dividends during the first quarter by three 3%.
This follows a similar increase last year.
Our underlying cash flow growth has allowed us to deliver consistent dividend increases EBIT through the COVID-19 pandemic.
Our dividend policy is set by our board.
And is based on an <unk> payout ratio of between 70 and 75%.
Last year, our F&B dividend payout ratio was 68%.
Needless to say our dividend is well covered by cash flow.
I'll close by updating our 2021 earnings guidance. We currently anticipate full year 2021, <unk> between $2 68.
And $2 78 per share.
This is down <unk> <unk> at the midpoint from our previous guidance of $2 76 for $2 86 per share.
The change is entirely driven by the completed sale of Burnett Plaza in.
And the assumed sale of our dimensional place investments this summer.
As we've stated before our joint venture partner dimensional place as a one time purchase option.
And while they have not provided formal notice.
We've received strong indications that they will exercise their option in the near future, hence our inclusion of the sale on our guidance.
The start of domain nine during the second quarter has no material impact on our guidance and there are no other dispositions acquisitions or development starts included in our guidance.
With that I'll turn the call back over to the operator for your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on you touched on from it.
If youre using a speakerphone please pick up your handset before pressing the keys.
At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Blaine Heck with Wells Fargo.
Go ahead.
Great. Thanks, good morning.
So you guys talked about proposals up 68% tours up 89%.
Maybe for Colin and Richard on.
I know you guys signed leases in every market during the quarter.
But were there any standouts were there any markets.
<unk>, where you saw particular liberally strong activity.
Well Blaine good morning, and.
Richard mentioned activity has has picked up quite significantly across all of our markets and we are seeing success.
Both then and sign leases and growing pipelines across the portfolio I would highlight a couple of markets debt.
And that we are seeing some outperformance I would say, notably Austin continues to benefit from the in migration into Austin.
No thats been widely publicized in several large announcements of tech companies.
Another market, where we're seeing really strong progress is here in Atlanta for some of the same reasons.
On a large announcements from.
Microsoft and Google and there are others that are behind that.
I'd say similarly, youre seeing these large.
Growing tech companies look to really strong technology talent here in Atlanta, but also very diverse talent and we think thats a trend thats going to continue and we're seeing some of the and early positive signs from that.
This is Richard the only thing I'd add is we saw some really encouraging new activity.
Overall activity at our Buckhead Plaza project in Atlanta.
We've decided to make an investment in repositioning that asset.
A couple of quarters ago, and it's really paying dividends. So it's encouraging to see the market responding to reinvestment in that property.
Great very helpful.
Colin we've talked about whether you guys would expand to any any different markets before and typically I think Nashville. It comes up in the conversation is the most likely new market and I think you actually mentioned it in your prepared remarks, but I wanted to also see whether you guys have a view on Raleigh.
<unk> in light of the recent Apple announcement.
Yes, Blayne, we currently do have a presence.
In the Raleigh Durham market with our Carolina Square mixed use project in Chapel Hill, where we've got an office and office building in multifamily.
And retail components, so it's certainly a market that.
Again, we've got we've got exposure to have visibility into and continue to watch and.
If we can find the right opportunities and entry point.
Open to all of the markets in the Sunbelt debt have got scale importantly.
Have.
A strong urban core where we feel like we can aggregate the type of assets that that can compete on things beyond just price and then have some of the.
Larger.
Kind of structural tailwind to it whether it's great University systems airports.
Other infrastructure like mass transit so.
We look at opportunities across the spectrum in the sunbelt for markets that meet that meet those criteria.
That's helpful. Thanks, guys.
Thanks, Helane thank you.
Our next.
Comes from Dave Rodgers with Baird.
Please go ahead.
Yes, good morning, everybody, calling wanted to follow up just on the Nashville, and Dallas comments I think it definitely comes up in conversation.
At this time you started that conversation in the prepared comments on kind of curious maybe to talk a little bit more about development opportunities that youre seeing.
As well as given the strong balance sheet acquisition pipeline that youre looking at today given the fact that you did mentioned those two cities in particular.
Yeah again, I think were were.
We certainly don't feel as I mentioned in earlier.
Opportunity constrained in our existing markets.
But at the same time right as we see compelling.
New investments that could be made whether acquisitions or development.
New markets, we spend a lot of time throughout the sunbelt.
In places like Nashville, we have a nice presence in Dallas today.
But again seeing some of the migration out of the West coast and Midwest into Dallas, We think Thats a market that debt we could hopefully.
Growth overtime.
But as we look forward to the balance of 2021, I'd say broadly speaking.
One were seeing the capital markets begin to open and not just for core.
Core and acquisition opportunities, but more broadly and as investors see see the return to office and potentially step out on the on the risk spectrum.
<unk>.
You said this last year I think people would be surprised that new development could we could see some new development opportunities earlier than some might think and again, that's just driven by our customers who continue to prioritize higher quality newer monetized type buildings, where they're confident they can attract.
The other employees and their teams back into the office and in person and so again, we're excited about domain nine.
And in Austin and were hopeful we might see some other similar situations later this year certainly into next year.
Great I think maybe for Richard you guys have obviously talked about the demand in the pipeline for quality and monetize space.
I guess, maybe to dive a little further in terms of the size ranges.
Activity that youre seeing between small and large tenants and kind of the tone of those discussions.
As they are unfolding.
Sure Thats a great question on I'd say that the demand.
And our pipeline is really broad based we have we have a lot of conversations.
And activity happening at every size within our portfolio I think we've always trended or been a kind of a larger user tier.
Tenant base.
But yes, we're seeing it at every level.
In terms of size.
I guess lastly, could you give us an update on the three kind of known or expected vacates in the portfolio and kind of a specific activity that youre seeing at each one of those.
Sure sure again the activity.
Is up overall in those three.
Those three opportunities are no exceptions so.
I would say that like we've indicated in the last couple of quarters the activity on the two Atlanta opportunities 1200 Peachtree.
30, 350 Peachtree our.
Pretty robust.
I'm looking at it.
Pipeline report for 200, Peachtree and we're we've got prospects at various stages.
Totaling over 500000 square feet.
At 30, 350 Peachtree were for over 200000 square feet.
And.
And then at one south we've continued to be a little quieter there, but Charlotte broadly speaking is starting to wake up as well so we're seeing.
Inquiries in.
And market activity pick up there as well.
Yes, just keep in mind.
Dave in terms of.
As an example, 1200 Peachtree, we don't get that space back until it really.
The end of the year and so.
Where we are with the early stage pipeline I think we're very encouraged about that.
But then again, we won't get that space back till the end of 2021.
Alright got you I appreciate the color guys. Thank you.
Our next question comes from Jamie Feldman with Bank of America. Please go ahead.
Thank you.
Greg are you able to provide some more guidance on on occupancy I know you guys said the trajectory will be down in the second quarter and then start to increase but can you maybe provide some thoughts on like magnitude or I don't know if you provided a year end occupancy target.
Jamie.
Even pre COVID-19 occupancy was not.
Metric that we provided guidance on so it's not something that we are holding back we're not being coy. We're not we're not trying to not provide guidance that we provided in the past.
Sure.
But the trend that Richard described earlier in the call is intact and we've got these couple of large move outs that Richard just tackled.
We will need to backfill them. So I think in the short term you'll see occupancy reflects that we do have some good stuff happening in Austin.
I mean, the domain, which will offset a lot of it from both on occupancy perspective, and a cash flow perspective.
Yeah, Jamie I think again net debt.
Our comments reflect as Greg said, a couple of the larger known move outs, we don't anticipate other kind of surprises.
Out there.
With other move outs that we havent discussed, but with anthem moving out in the middle part of this year and with with new leasing being a little bit slower during the pandemic.
I think the combination of those two.
Has the trend a little bit lower over the course of the year, but again, we're we're very optimistic with the ramped up in the pipeline that debt.
We can we can backfill that.
Can it create positive leasing momentum as we get into the second half of the year.
Okay. That's helpful. And then maybe if you could just provide more discussion on more thoughts on starting domain nine spec.
What are the conversations like for that space, specifically and then we see the stats on Austin with sublease up in vacancy up but how do you think that market plays out that gives you more confidence.
Just on that project.
No.
We never make a decision to move forward on a on a speculative development project lightly, but I would share with you. We made the decision on domain nine with with a lot of confidence and a lot of conviction.
And I would say specifically about.
On the supply and demand fundamentals out at the domain and then broad based about the activity.
In the in migration.
Into Austin.
And so as we look holistically at the at the market fundamentals limited to really no new supply in the core.
Of the domain and in the preliminary inquiries from customers.
Customers those small medium and large.
We had we had a lot of confidence and again there is always risk in starting a new project speculatively, we looked at this and viewed that there was risk to not starting this project with the way things were kind of shaping up in the market. So we're excited to get it to get it.
Started and continue the momentum out of the domain.
Okay, and then how do you envision it in terms of large anchor.
Like what size would you be targeting for an anchor or do you think it'll be more small tenant.
Jamie I think it could be.
Any of those or a combination thereof, as I mentioned, there is potential interest from some very large customers.
There is certainly interest.
In the kind of mid size I'd say those folks looking for a floor to floor three floors.
So there's kind of a broad based interest and over time, our team will work through it and try.
Try to piece that together the best way, but we obviously like we obviously like one big large customer.
And we've had success out in the domain doing that.
But we will.
We'll piece it together over time.
Okay, and then what are your thoughts on downtown.
And how things are shaping up there.
We continue to have a lot of confidence as I said in Austin as a whole.
On downtown we've got a great portfolio.
Trophy assets and.
We're seeing activity pick up.
Quite nicely in.
In downtown Austin, Theres been a lot of discussion about sublease activity in downtown Austin ticking up over the course of the pandemic that was not entirely surprising.
To us as you saw certain companies that had.
Probably prospectively banked.
Bank.
Some some square footage in real estate in anticipation of hiring new talent and when those efforts were put on pause to hire talent.
Last year I think you saw some some response on the subsidy side, but as we've moved into this year the activity of the inbound activity in Austin, We think will over the next 12 months certainly.
Bring that market back to stabilization and we've already started to see some signs of customers, who put space on the sublease market.
When they were ultimately forced to make a decision with with other customers willing to take the space. In some instance has been pulling pulling that back off the market.
Okay, great. Thank you.
Thanks, Jamie.
Our next question comes from Daniel Ismail with Green Street.
Please go ahead, great great. Thank you maybe one for Richard.
Relating to Jamie's question can you speak to the desire of these large tech companies coming into the sunbelt to locate in the downtown versus maybe a more suburban area.
Say downtown Austin person, but demand.
Sure well I think broadly speaking what the large tech users are looking for or.
Our one critical mass in one location oftentimes, but then that location.
In an area, which is highway and monetized.
Whether it be within the building, but even more importantly in the neighborhoods. So.
Youre seeing these companies a balance whether it's relocations or expansion and consolidation within our market. They are already operating in.
Wanting these these more urban locations frankly than they are wanting to put her on isolated campus out on the suburbs.
And so that trend frankly.
Frankly, we're seeing that really before COVID-19 and I think it's only continuing.
Yes, I'd just add Daniel in terms of.
And as you look at Austin as an example on the domains only in 15 20 minutes from from downtown.
And both the domain and downtown are obviously highly monetized a mix of uses attractive environments and I think in many cases.
<unk>.
Specific to the company and in some instances it's specific to the particular use and I'd use Facebook as an example, that's got both.
Large presence downtown.
And they've also got a large presence out on the domain and so again I think.
You almost have to drill down.
Deeper into the company in that particular group in that particular use debt oftentimes influences.
Where they want to put that particular lease.
Got it and then on pre.
Pre COVID-19 I believe development yield and.
In aggregate on on the development pipeline was around 7% to 8% can you provide an update on where development yields 60 day and then.
Are there any sunbelt markets, where development just doesn't pencil or might be too risky at this point.
Well I'd say, we have not seen a substantial change in in development yields, let's say broadly.
Broadly speaking.
And I think the range that debt that you.
<unk> is a fair assessment depending on.
The market depending on the risk profile.
The project one thing we are watching as we come out of COVID-19 that could impact development returns as any movement in cap rates and <unk>.
They for trophy assets have been relatively.
Stable, but we are seeing an influx of new capital into the sunbelt from some very large.
Institutional investors that I think recognize the trends that we talked about the migration of the sunbelt and the flight to quality and as cap rates, if cap rates were to tick down that could.
Apply pressure to.
Element yields, but I think again stepping back to your question any markets that we wouldn't pursue development we.
We take that on a case by case basis as I mentioned as we evaluated the domain opportunity we look at.
On the the market dynamics market fundamentals, whereas vacancy today, what is incoming demand look like and then importantly.
There are other new supply and we take that on a we just take that on a case by case basis.
And then just last one for me.
Given all of the strength of the demand.
<unk> been discussing for the stock is trading today, how are you thinking about using public equity to fund growth.
Hey, Dan its Greg good morning.
So as compelling uses emerge for capital.
We will look at our options at that point in time.
And make a decision and we're going to use the most sufficient capital available to us at the time for the need arises.
Thats property sales and property sales for quite a while but but at points from the cycle it can be equity as well.
So it's a case by case decision that we'll make there's no kind of blanket answer for you.
I would say that there are some there.
There are some strategic reasons sometimes.
To sell on asset.
That might be taken into consideration as well as the cost of capital it might be an asset with poor risk reward profile it might be an asset with some significant capex requirements that we don't think we'll get paid back for.
And Theres a lot of other reasons as well so yes. The numbers are important for sure, but sometimes there are other considerations that we will get as well.
Great. Thanks, everyone.
Thanks Danny.
Okay.
As a reminder, if you have a question. Please press star then one to join into the queue.
Our next question comes from Joab Dempsey with Truest. Please go ahead.
Hi, Good morning, everyone. Just one for me I'm wondering if you took a look at the preferred apartment portfolio debt.
Highwood ultimately bought particularly the Charlotte assets. Thanks.
Hi, good morning.
We have in the past looked at.
For the various prop.
Properties and assets that were.
Included in that transaction.
And we know them well.
And.
And it will.
We have not specifically in the past targeted.
On those assets to buy.
But we have we have looked at them in the past.
Great.
It's probably I mean.
It seems to be addressed earlier in the day.
A question, but.
Portfolio.
I know Theres no acquisition guidance numbers in your guidance, but if a.
A high quality portfolio.
The Charlotte market were to come up again would you consider.
Looking at that.
We look at all opportunities across the Sun belt in the markets debt that we target and are core to us and whether those be single asset acquisition portfolio acquisition and new development opportunities.
We tried to that cousins look at.
All of the different opportunities that are out there and then try to allocate our capital in a disciplined yet compelling manner and so we're open to all sorts of transactions and I think we've demonstrated that in the past.
Okay, great. Thank you.
Our next our next question is a follow up from Jamie Feldman with Bank of America. Please go ahead.
Great. Thanks for taking the question.
Just wanted to get your latest thoughts on capital sources looking at the markets now that things are improving.
About your year.
And on activity picking up I mean would you say there is a change in demand for assets or change in amount of capital, that's looking and willing to pay different lower cap rates or get more aggressive on underwriting.
Curious for like the latest update.
Yeah.
It's obviously still kind of early.
Coming out of COVID-19 and you haven't seen.
The volume of.
<unk> closed transactions meaningfully increase but as I mentioned earlier, we do anticipate debt increasing over the.
For the balance of this year and certainly into next year and just based on activity.
Activity, we've seen in the market in terms of new investors looking at Sun belt markets, whether it be large institutional investors that historically were only focused on that.
Whey markets International capital, we are seeing more investors.
Spending time looking at places like Atlanta, and Charlotte, and Austin, Dallas, and others and again I think it is just driven by.
The capital is seeing where the people are going to companies or have been following and I think the capital is is taking note of that.
And we would anticipate to see see more of those investors.
Participate in the market.
Do you have any appetite to do.
A larger JV or funds with more capital flowing into the region.
As Greg mentioned earlier.
When we see.
Uses of capital kind of compelling new investment opportunities, we look at all of our sources of capital.
On whether thats dispositions or JV capital.
And try to make the best decision for the specific opportunity, but at cousins, we don't feel capital constrained today, and we do like the simplicity of our balance sheet and that allows us in many cases to move forward, but if there were a strategic reason for.
For a joint venture or bringing in a partner.
We absolutely we will consider those if they've got strategic merit.
Okay, great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Colin Connolly.
Excuse me to Colin Connolly for any closing remarks.
That's okay. It is a bit of a tongue twister.
I want to thank everybody for your interest in cousins properties and participating in today's Investor call. We'll look forward to seeing hopefully many of you at the NAREIT conference in June if you've got any questions for us please don't ever hesitate to reach out to <unk>.
Meg or running thank you all on have a great weekend.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.