Q2 2021 Cousins Properties Inc Earnings Call
Yeah.
[music].
Good morning, and welcome to cousins properties second quarter Conference call all participants will be.
Listen only mode. He or she has great signal conference specialist by pressing the star key followed by zero. After today's presentation will be opportunity to ask questions. Please note that this event is being recorded.
I would like to turn the conference over to MS. Pamela Wolpert on General Counsel. Please go ahead.
Thank you good morning.
Welcome to cousins properties second quarter earnings Conference call with me today are Colin Connolly, our President and Chief Executive Officer, Richard Hickson, Our executive Vice President of operations and Greg on Sema, 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 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 on our annual report on form 10-K, and our other SEC filings in particular there are significant.
Difficult 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 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 store.
<unk> package posted yesterday and a detailed discussion of the 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 call on comps.
Thank you Pam and good morning, everyone.
As we reach the midpoint of 2021, and it's been wonderful to see many.
Any of our customers, bringing their teams back to the office and we anticipate seeing more post labor day.
While we continue to monitor or public health guidance around COVID-19, and specifically any office delays brought on by the Delta variance I also remain optimistic about the remainder of 2021 and.
Yes.
Our team delivered strong financial results during the second quarter here are a few highlights.
On the earnings front, the team delivered <unk> 69 per share and <unk>.
We leased over 484000 square feet with a 12, 9% increase in second generation cash rents.
Same property NOI on a cash basis increased 7.1%.
And our net debt to EBITDA at quarter end was 455 times and G&A expenses as a percentage of total assets. We're at just 3.6%.
Turning to the business are.
Our ongoing conversations with customers provide us unique insight into their evolving long term office strategy.
And those plans are beginning to crystallize.
First most of our large growing customers are excited about their return to the office.
The Delta variance could create delays we now.
Conviction that a meaningful return to the office, it's not if it's just a win.
In some instances employees will return for part of the week, which some call hybrid <unk>.
Importantly, the nature of the hybrid model coordinated in office days, which are designed to facilitate collaboration.
Have Connecticut necessitates real estate size for peak load and likely does not have a significant impact on office demand.
While it's hard to remember office like before the pandemic. This was already the reality for most technology and professional firms.
Second <unk>.
Companies and people are migrate.
<unk> for the Sunbelt, where the business climate is more friendly housing is more affordable and commute times are shorter.
Third as companies return to the office and migrate to the Sunbelt. They are trading up to be in an environment, where employees are excited to come to work and collaborate.
This.
Great into quality trend existed before COVID-19, but it is clearly accelerating.
With these themes taking shape in addition to our great quarter, we're seeing positive signs of economic recovery in our leasing which continues to grow.
Our late stage pipeline has increased significantly.
And we are highly encouraged by the opportunities in front of us.
Inbound growth and expansions from our existing customers.
Importantly, we are seeing activity in our higher profile vacancies, including 1200, Peachtree and $33.50 Peachtree.
As well as in our development projects like domain 910000, Avalon and 100 mill.
As I have mentioned in quarters past.
We have a simple and compelling strategy at cousins.
To assemble the Premier urban Sunbelt office portfolio.
To be disciplined.
About capital allocation. So we can pursue new investments, we are operating and development platform can add value.
And to maintain a fortress balance sheet, which provides us significant financial flexibility.
At cousins, we are positioned at the intersection of 2 powerful long term trend.
Friends, the migration to the sunbelt and the flight to quality.
As these accelerate we are responding.
Let me highlight some exciting announcements from yesterday.
Through our relationships, we source an off market transaction that includes the recapitalization of new horse and.
<unk> development project in Nashville.
And the acquisition of 725 pumps in Atlanta.
New half as a transformative mixed use project debt marks our strategic entrance into the Nashville market.
It is located directly across the Cumberland River from Oracle's recently.
<unk> Nashville campus and provides a clear path for growth in this new market.
Construction has already commenced on phase 1 of the project, which will consist of approximately 388000 square feet of office space.
542, multifamily units and 60000 square feet.
We announced <unk> retail.
Cousins investment of $275 million represents a 50% ownership interest and includes a phase 2 office site that can accommodate 275000 square feet of additional space as well as rights to future adjacent land parcels.
<unk>, new <unk> has a unique location.
That differentiated adaptive reuse component.
And plans for an exciting new food Hall.
There is simply nothing like it in Nashville.
We also acquired 725 pounds, a 372000 square foot office assets in East <unk>.
<unk> of the from Atlanta.
For $302 million.
We view this property as 1 of the highest quality and most interesting buildings in Atlanta.
Located along the beltline, 1 of the city's premier public spaces and directly across from Ponce City market.
1 of them on.
Medallion monetized and active areas in town.
725 is currently 100% leased to customers, including Blackrock.
Mckinsey <unk> company and Chipotle.
Cousins also acquired a 50% ownership interest in adjacent land site for an additional 4.
$4 million that can accommodate 150 to 200000 square feet of additional development.
We also announced that we sold 1 south at the Plaza.
891000 square foot, 58% leased office property in Charlotte.
For a gross sale price of $271.5 million.
Some might ask why sell 1 south now.
First we remain extremely bullish on Charlotte and have a best in class portfolio, a talented team and great land sites in the south in for.
For future growth.
So the simple answer is in our view the.
The purchase price fully values the upside from re leasing a 19 seventies vintage office property with a high Capex profile and provides capital to reinvest in new and more compelling opportunities.
In summary through these creative transactions, we have entered Nashville, and exciting new market for cousins acquired 725 parts 1 of the best buildings in Atlanta with an additional pad for future development and funded these transactions in part through the sale of an older vintage property.
Overall this enhances the portfolio quality.
Gives us opportunities for growth in.
And shifts speculative leasing from a 47 year old assets to brand new highly differentiated products.
Interestingly.
The purchase price of 1 sales is approximately.
The same is our value from the tier merger pre pandemic.
This is a strong read through for capital interest in leading sunbelt markets.
As we look ahead and hopefully emerge from the pandemic our conviction around our Sunbelt Trophy office strategy is as strong as ever.
Today, we have day, leading trophy portfolio and the best Sunbelt Submarkets in Atlanta, Austin, Charlotte, Dallas Phoenix and.
And Tampa.
Plus we now have room to grow in Nashville.
Large growing companies recognize the value of office.
Migration to the Sunbelt is on the rise and companies continue to prioritize newer and monetize experiential office space that excites employees to come together.
We are obviously watching the delta variant and any potential impact nonetheless.
We are thrilled with the company's position as.
As we look ahead to 2022, the declining fees from a terrific terrific transaction with Norfolk southern will be behind us.
We have creatively and proactively address a large vacant block at <unk> and.
And are excited to pursue new op.
Yes, please with our rock solid balance sheet.
In closing.
The power of Sunbelt Trophy office is becoming increasingly clear.
For for turning the call over to Richard I want to thank our entire cousins team, who work hard each and every day to bring their skills and talents to the company.
Opportunity for our customers and our shareholders they.
They are the foundation of our company's success.
Thank you Richard.
Thanks, Colin and good morning to everyone on the call this quarter saw on improving economic backdrop, and more stable operating environment, resulting in a strong second.
Second quarter operating performance.
While the pandemic is certainly not over and the Delta variant persists the demand for office space across our markets is improving.
As Colin mentioned, the vast majority of our customers have either already returned to the office or have signal. They will return sometime this fall.
And as some fully and others on a phased or hybrid format.
From our perspective post labor day seems to be the most common return timing cited for.
For now physical customer utilization on our portfolio sits around 30%.
The variation on utilization across markets that I mentioned last quarter remains with Atlas.
Ranta, Dallas and Tampa, all running at higher utilization rates we.
We still anticipate utilization to be largely back to normal portfolio wide by the end of 2000.2021.
Turning to second quarter operating results, our total office portfolio lease percentage and way.
Weighted average occupancy both came in at 89, 4% this quarter.
Our leased percentage declined 80 basis points this quarter, which was mainly attributable to the previously known move out of anthem 30, 350 Peachtree in Atlanta.
Given we report occupancy on a weighted average basis.
And anthem expired at the quarter ended the quarter, we actually saw a modest increase in occupancy versus last quarter.
For the balance of the year, we expect our weighted average occupancy to remain relatively stable.
As a reminder.
Norfolk, Southern will vacate 370000 square feet at 200 Peachtree at the end of.
On a spur representing a fantastic value creation opportunity going forward.
And looking for 2022.
I would note that we have only 6.5% of our annual contractual rent expiring with no expirations greater than 100000 square feet.
As for leasing activity we.
<unk>, a solid 39 leases totaling 484000 square feet this quarter, surpassing our level of reported activity in the first quarter of 2020.
Leasing volume wasn't the only metric back to pre pandemic for them this quarter.
We see mix was much improved with new and expansion leases leases.
We exited for 74% of total activity.
Recall that new and expansion leasing combined with a pandemic low of just 14% of activity 2 quarters ago.
Net effective rents were $23.77, this quarter an improvement over the first quarter and only <unk> <unk> lower than our reported net effective.
Accounting for the full year of 2019.
Rent growth remained remarkably strong as well with second generation net rents increasing 12, 9% on a cash basis.
And finally, our average lease term bounce back 6.7 years on average these are great leasing results.
We're also still seeing.
Encouraging activity in our leasing pipeline, both for our existing portfolio and new development projects, specifically tour volume remains on the upswing.
In our Austin portfolio second quarter tour activity was up 53% versus the first quarter.
While not specific to our portfolio of CBRE.
<unk> also recently noted that in Phoenix June 2021 tour volume was 240% greater than the average monthly volume in 2019.
As we have pointed out many times. The pandemic has served as an accelerant to the migration of people and companies to the sunbelt.
Companies are being driven to reconsider where they are located primarily due to intensifying competition for talent.
We simply need to be where the talent is or wants to be an increasingly that is in the sunbelt.
Of CBRE is 2021 development opportunity watch list 8 out of the 10.
<unk> biggest development opportunities are located in the Sunbelt region.
Among the metropolitan areas with population is larger than 750000 people large sunbelt cities led the way in terms of nominal population growth last year in.
In fact, the top 7 metropolitan areas for population growth in 2020.
We're all in the greater Sunbelt region. According to Costar.
The recently released new market opportunity index showed that every 1 of our markets included in its index has experienced meaningful job recovery since the depths of the economic downturn, Nashville, Tampa and Dallas ranked highest across.
The economic metrics in this index with Tampa at the very top.
Tampa is employment is the closest to pre pandemic levels of all markets and new marks index.
Not surprisingly Austin remains near the top of the list for nominal population growth and it's the labor market continues to be 1 of the strongest nationally.
Austin's population increased by more than 67000, new residents over the past year second to Atlanta per day.
Overall leasing activity in Austin has increased every quarter since the pandemic began with this quarter's activity, reaching 80% of pre pandemic levels.
Further according to Morgan Stanley.
<unk> Austin was the only market to have a consecutive quarter improvement and sublease listings posting a decrease of 18%.
<unk> estimated the quarterly decline was even greater at 29%.
There are promising trends and sublease listings.
In our other core markets as well.
That's our largest market continues to see an uptick in demand, particularly from the technology sector and Midtown and Buckhead are leading the recovery so far this year in.
In fact, <unk> second quarter office Submarket report for Buckhead stated that overall leasing activity was up 200% year over year.
And <unk> portfolio opportunity excuse me cousins Buckhead portfolio participated in this demand signing 65000 square feet of expansions with high quality publicly traded technology companies this past quarter alone.
Our current leasing pipelines in both Buckhead and Midtown are equally encouraging.
Looking ahead, we believe we will continue to see a noticeable flight to quality companies are likely to increasingly view. The office is critical to fostering culture collaboration and career development not to mention as a tool for attracting and retaining the best talent.
Data clearly demonstrates this.
Dynamic for example per CBRE, 74% of new leasing activity in Phoenix. This year has been on class a projects by comparison over the past 5 years this percentage hovered under 50%.
Further <unk> recently noted that nationally office projects delivered after 2000.
As we actually experienced a net occupancy gains over the past 5 quarters in the teeth of the pandemic.
While the pandemic is certainly not over and we are closely monitoring monitoring the impact of the Delta variant, which could bring with it some economic fits and starts we are optimistic about the balance of the year and a lager.
Term recovery, our markets and portfolio are extremely well positioned and we have numerous exciting opportunities ahead of us.
Before handing off to Greg I want to thank my cousins teammates that have worked tirelessly to produce strong results such as those delivered this quarter and through the entire pandemic.
5% to each and every 1 of you Gregg.
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.
Our transaction activity.
Followed by a quick.
Thank you some of our leverage position for closing my remarks with updated information on our outlook for the balance of 2021.
As you can tell from Colin and Richard's remarks, we've been extremely busy.
However, we don't want all of that external activity to take attention away from our very solid.
Discuss internal performance during the quarter.
At <unk> 69 per share.
<unk> was up almost 5% compared to last year.
And the important operating metrics that we all focus on were very strong.
Leasing velocity returned to pre COVID-19 levels.
Second generation cash leasing.
<unk> brands were up double digits.
Same property NOI on a cash basis increased 7.1% over last year.
Focusing on same property performance second quarter results represent a significant and a constructive change in trend.
Numbers were driven by improving revenue.
Which increased 6.6% on a cash basis.
This is the first year over year increase in same property revenue since the first quarter of 2020.
The largest variable within our same property performance remains parking revenues, which are in large part driven by the physical occupancy in our buildings.
<unk> after bottoming during the fourth quarter of 2020.
Same property parking revenues are up 14%.
But they still remained 23% below pre COVID-19 levels.
Turning to our development efforts, 1 assets 120, West Trinity a mixed used property in the Decatur Submarket of Atlanta that we developed.
<unk> thousand 80 joint venture.
Was moved off our development pipeline schedule.
And into our portfolio statistics.
But on another asset domain 9 and office property in the domain Submarket of Boston commenced development during the second quarter and was added to our schedule.
The current development pipeline.
Represents a total cousins investment of $492 million.
Across $1.3 million square feet in 4 assets.
Our remaining funding commitment for this pipeline is approximately $210 million, which is more than covered by our existing liquidity and future retained earnings.
On the transaction front as Colin laid out at the top of the call. We've been very active in total the sales of Burnett Plaza and 1 south.
Combined with the purchase of 725 pumps the.
The investment in new Hoff.
And the development commencement of domain 9 represent over $1.1 billion in transaction activity year.
To date.
In addition, our joint venture partner at dimensional place from Charlotte has exercised their option to purchase our 50% interest in the property with.
With the closing expected at the end of the third quarter.
As this series of transactions unfold.
We intend to maintain our net debt to EBITDA around.
<unk> 4.5 excuse me 4.5 times.
As we've done with very few exceptions since 2014.
We believe this leverage profile provides both defensive support during challenging times as well as offensive firepower.
To execute compelling transactions.
<unk> opportunity presents itself.
In addition to small transaction, but we do want to call your attention to the sale of a land parcel adjacent to our 100 mill development in Tempe subsequent to quarter end.
The site was sold for $6.4 million earlier in July and will be developed into a Hyatt branded hotel.
When it's a testament to the quality of that location that this sales held through the Covid pandemic.
This new hotel will be an important amenity for our 100 mill customers as well as the customers from the other 5 buildings, we own within 2 blocks of that site.
On the capital markets front, we closed on a 350 million.
Unsecured term loan during the second quarter, replacing a $250 million term loan.
That was scheduled to mature later this year.
The new loan matures in 2024.
And the applicable LIBOR spread was reduced by 15 basis points.
The covenant package remains unchanged.
It was a very solid execution beginning to end.
I'll close by updating our 2021 earnings guidance. We currently anticipate full year 2021, <unk> between $2.70, and $2.78 per share.
This is up 1 penny at the midpoint from our previous guidance.
This guidance includes all of the transactions that we've discussed on this call. There are no other dispositions acquisitions or development starts included in our guidance.
The most significant on variable behind our guidance remains our parking revenues.
As Colin discussed earlier, our customers have begun returning to the office.
And we anticipate this trend accelerating after labor day.
Our current parking revenue assumptions reflect this outlook. However, the delta variant could delay timing, but it's too early to know for sure.
With that let me turn the call back over to the operator for your questions.
Well now begin the question and answer session Thats. Good question you May Press Star then 1 on the Touchtone phone.
And using a speakerphone please pick up your handset before pressing the keys withdraw your question. Please press Star then 2.
At this time, we'll pause momentarily to assemble the roster.
Our next question will come from Blaine Heck.
Wells Fargo. Please go ahead.
Great. Thanks, good morning.
Thought it was interesting you guys kept the garage adjacent to 1 south can you talk about that decision what impact that might've had on pricing had you included it in the sale and then your future plans for that piece of the property.
Good morning.
Blaine.
Yes, as it relates to the garage we did purchase.
On last year and it was it was a terrific transaction.
For us to mitigate with what could have been.
A parking challenge for 1 south going forward.
On.
And so it was very positive to add that parking immediately adjacent Q1 sales. We did have conversations with our buyer as to whether do include debt or not we ultimately settled on a long term leasing opportunity for them with the garage and.
I think as we've said in the past.
It's a it's a terrific Lee located.
Raj.
In early diverse located garage in the city of Charlotte and we actually think it could be.
While not a typical investment for cousins given its location in the long term leases on it we think it could be a pretty attractive investment for us.
And we'll just continue to evaluate it and monitored overtime as to do we continue to hold that or sell it at some point in the future.
Okay got it that makes sense.
And then on just wanted to ask about the on May 9. Obviously, you guys are just starting there and have a bunch of time to lease that space up but given the strong demand in that submarket.
I wanted to ask about leasing prospects you guys might have there and how youre thinking about the balance between maybe getting some some solid pre leasing on that project, maybe waiting it out to to take advantage of potentially higher rents in the future.
Yes, great question, Blaine and certainly.
I don't want people with these new exciting transactions to forget what we think is a really exciting announcement.
On that back in June to start domain 9.
We are extraordinarily bullish.
About Austin in general and I would say the domain in particular.
And.
I think as I said in some previous conversations we really felt like our customers were pushing us to start.
Domain, 9 and Thats, both from kind of existing customers in the area as well as the migration into Austin, and we've got a really terrific pipeline.
The activity in that building ranging from.
Some small medium sized and candidly some very large opportunities.
That could potentially take.
Chunks or all of that space. So we're on it.
Actively working through those discussions, but we wouldn't have started it if we didn't feel really good.
Good about our prospects to fill.
<unk> set up.
Okay, Great. That's helpful and then related to that when you think about the development pipeline you know I have domain 9 and new on that or both.
Speculative developments clearly you guys see good demand in those markets and Youre confident in leasing Prague.
Line is there, but looking forward do you think having those speculative projects.
The bar a little higher for pre leasing to start any other developments in the future.
Well I think as you look at the announcements we made yesterday.
And look at those in their totality.
<unk>.
We actually.
<unk> actually reduced our our kind of our net speculative vacancy if you will.
As I mentioned in my remarks, we effectively traded 350000 square foot speculative space and an older vintage assets at 1 south.
Progress.
And shifted that too.
On new half, which will be again, I think 1 of the most differentiated products in all of Nashville.
So we haven't actually increased our speculative.
Kind of development exposure, we've just we've shifted into what we think is.
<unk> products, but as we start any new project.
That has got some speculative component to it we certainly are looking at our existing portfolio and in vacancy that we have and as well as how much additional spec space to add and are certainly trying to balance and manage.
Better overall risk profile, but I think in the case of where we stand today as I said, we're very bullish on our prospects and our opportunities at <unk>.
Domain 9.
And.
Feel good about how we have shifted the vacancy between 1 south and new hearth and again.
<unk> we have.
Really terrific land bank.
<unk>.
Within the within the company that could support over $5.5 million square feet and so as we continue to see the demand in the in migration into the sunbelt and again some of our existing customers looking to expand.
We are evaluating that.
Net debt land bank and I'm trying to think about what could be the next opportunity to to.
To meet our customers, where they want to be.
Got it thanks Colin.
Thanks Bryant.
Thank you and the next question.
<unk> comes from Jamie Feldman of Bank of America. Please go ahead.
Alright, Thank you and good morning.
I was hoping you could talk a little bit more about the pricing on both the acquisition today on the 1 sale, maybe just give us some more color on what gave you comfort on.
The returns and the price and get paid and accepted.
Terrific good morning, Jamie.
<unk>.
So let me start as I on.
<unk>, South, which I mentioned in our call.
We feel like that pricing was very attractive for us.
For us at cousins as we look at whether we continue to rebuy, 1 south ore.
Or sell it at that price and I think from our view and perspective.
That pricing.
Fully reflected the upside from kind of the value add re leasing nature of that asset and particularly when you look at the vintage of it.
And.
Thank you.
You look.
Look at what we put it on our books when we did the tier merger, we're effectively selling at just about the same price and we've obviously gone through a pandemic.
And still in the midst hopefully at the tail end of this pandemic.
And.
On the asset down at 58% leased we think it was a.
A very attractive price for us to execute for shareholders.
Pivoting over to the new acquisitions at 725.
Part of it.
As we disclosed yesterday thats, a 5.3% cap rate and about a 6.
And 1%.
GAAP return, which reflects the below market rents.
I think it's interesting as you kind of compare that to the transaction we did at the rail yard.
In Charlotte in December, it's actually kind of side by side very similar yields very similar.
Transactions and I think importantly in both cases, we were able to acquire an adjacent piece of land.
That gives us some future upside.
2 to develop those.
Additional parcels and achieve some value add development returns to really complement the acquisitions.
6 point, Okay. That's helpful.
And then I guess.
Just thinking about Nashville, I mean, what do you envision there in terms of your ability to grow over time.
And I guess for both site. How soon do you think you would actually put some of that land to work.
Well in terms of Nash.
National I mean, 1 where we've been.
<unk> net market I think we've talked very publicly in the past.
About Nashville on our interest in it and it's just got so many of the same characteristics that are on other sunbelt markets like Atlanta, and Charlotte and Austin, Tampa, and Dallas, and others have and continued to see very similar in migration.
For coal and.
And Amazon's.
Announcements I think certainly solidified our views on Nashville, I think what's so exciting about new horse is as I mentioned, it's we think will be the most differentiated and unique projects.
In Nashville.
But importantly for us it does have a path and room to grow.
Part of our transaction we acquired.
A phase II site and.
And we will actually build some of the infrastructure and the parking.
During the phase 1 construction period.
And then beyond.
And we do have additional rights to some adjacent land that could create a phase III or more.
Certainly now that we're there our goal over time is to is to scale.
Really attractive and highly desirable.
Portfolio and that.
It could be a combination of additional development land purchases and certainly some property acquisitions. So so we're excited too.
To grow and build build a platform of cousins platform in Nashville.
And then what's your team kind of look like there and what do you think it's going to look like over time.
Well.
So as we build the portfolio and grow it.
To a size that we think justifies economically justify having boots on the on the ground.
We will do that I think at the moment.
We feel again very we're very excited about new office as it.
It does have a development partner that we can leverage in new city, who does have a team on the ground and I think that's a great way for us to start.
And enter.
Nashville on a strategic way.
But at the same time for us here in Atlanta, and our team Kennedy Hix is our <unk>.
<unk>.
Vice President of investments Nationals, just a short drive away.
And so we're able to be there and have some of our team on the ground on a regular basis as well.
Okay.
And then shifting gears.
It sounds like you guys are a little more optimistic here on $33.50 in.
1200, Peachtree can you just talk about the leasing pipeline for those projects for those spaces.
Yes, Hey, Jamie This is this is Richard.
The pipeline is in good shape much like it was last quarter for both of those assets and the activity you're kind of ranges.
The full gamut.
Size perspective, so we're really encouraged by what we're seeing in the demand for both of those locations.
I feel like.
Pretty confident we'll have something good.
The report here soon with regard to forward progress on the lease up.
Okay I assume there's nothing in guidance from $33.50 for this year.
From us another theres nothing on guidance.
Okay alright, thank you.
Thanks, Jamie.
Thank you next question comes from Dave Rodgers of Baird. Please go ahead.
Yes, good morning, everybody, calling wanted to ask about the flip side I guess of the argument of expanding into.
Some of the new markets newer product.
And maybe more on monetized locations and then how that impacts your view on selling assets going forward.
Maybe undifferentiated CBD assets or fringe oriented kind of a large glass boxes that maybe don't what <unk> been trying to do in the last 5 or 6 years and youre.
And how that's changed since Covid.
Well I think net.
For US again, I think what's exciting as you look across our portfolio by and large the overwhelming majority of it I think do reflect.
These highly monetized.
<unk> well located experiential.
On the type assets and so as I look around what we own here in Buckhead and Midtown certainly representative.
That as well as what we're doing on at the domain and downtown Austin Tempe.
Charlotte.
<unk>.
<unk> been asked this strategy for for now about 10 years, and I think of it really.
<unk> made terrific progress and we're going to continue that progress when we identify and see those opportunities to either acquire.
<unk> <unk> build and we will.
We will fund that appropriately.
Some of the older vintage higher capex properties, but but I think in our case, that's actually a pretty a pretty small percentage of it at this point.
Maybe with respect specifically to Charlotte, obviously, a number of 1 off and unique situations where you.
Reduced exposure.
Closure to the market and maybe where you had been a year and a half ago any broader read through on Charlotte and particularly on Uptown with regard to the assets you have NASCAR fifth third that remain there relative to kind of where you've been trying to grow there which has been ex uptown yes.
Again to be very clear.
We are.
I have a high degree of conviction in Charlotte as a whole and and are excited to grow our presence there as I mentioned, we have a fantastic team and we've got some really terrific land sites in south and but we continue to like Uptown as well and it.
It really is if you if you kind of look back over the last year. As you mentioned they were all very unique situations, where where we monetize assets there non us.
Driven by our view on the market, but in the case of Hearst tower right.
Massive headquarters.
Peace with true is a large financial institution, who absolutely had to own their corporate headquarters that was.
It was a strategic transaction.
Debt, we felt like made sense gateway village.
In Charlotte our partner of 15, plus years and Bank of America had a had a purchase option and they did.
Decided to.
They elected to exercise that they are very similar with dimensional place just a fantastic execution for cousins and a great win for shareholders, but as a part of that original lease they had a purchase option.
And then I think more recently with 1 south.
Again, it's an asset.
Asset that we acquired via the tier merger.
And knew of the vacancy coming with bank of America.
As I said ultimately somebody offered us a price that we felt like reflected kind of the.
Net.
On the entirety of the upside and we're able to recycle that in kind of newer vintage properties.
So that again was a unique situation, but Charlotte as a whole is going to continue to do well that's going to continue to benefit from the migration at cousins, we fully plan on participating in that growth.
I appreciate the clarification on that thanks, Richard maybe on leasing more broadly it sounds like for both the vacancies that you have got either.
There currently are pending in Atlanta, the larger ones, you've got various size ranges, but I guess across the board can you talk about activity from different industries, what their what's missing.
The terms on the leases changed around termination options on out those types of things and then maybe net effective rents where those are settling in its good base rents, but curious on kind of where the concessions.
<unk> are settling in.
Sure sure.
So let me start with just the pipeline in general I mean again it's.
It's positive across the board.
Both.
In terms of markets and then in terms of early stage versus late stage.
So we are seeing encouraging interest in continued.
Demand I would say that from an industry perspective it certainly.
I think it's certainly holds true and we positive very early on that technology with highway likely be that the industry that leads us out of out of the downturn and probably has the most demand and certainly pent up demand.
And so so we're seeing that for sure, but but we're seeing demand from from a lot of different segments.
Can't say that I have 1 industry or 1 segment that is just completely absent in terms of kind of waking back up.
In deciding.
To restart their planning.
And look at taking more space or.
Addressing kind of near term decisions. So I think it generally it's broad based but certainly the leader.
As technology.
We all know that the co working slash Flex office players, where we're really driving a lot of volume going into into.
Into Covid and before before the market turned down and they are not driving demand at this point so.
With that said they are all looking to grow again, but they are not a big driver at this point so.
A very healthy dynamic there as well.
In terms of concessions.
Net effective rents.
I'd say largely just starting on the top face rents have held in <unk>.
Through through this downturn and now recovery and really have been kind of flat to slightly down in places depending on the market but.
Concessions have been where the a lot of the action has been.
And I'd say the largest pressure point has been free rent.
On another pressure point has been ti, but not quite as much as in the free rent.
Fortunately in terms of our signed activity, we've been able to to continue to improve our net rents and offset those increases in concession. So.
While we are a little bit elevated say if you just look at this this quarter in isolation. It certainly if you look at Ti and free rent combined we've seen these levels on a per square per square foot per year basis in the past so we're not.
We're not way out of line, but we are what I consider to be slightly elevated.
And hard to hard to really hang your hat on 1 quarter. So.
I think we'll continue to feel that pressure on concessions, but at the same time, we are having pockets.
Of activity in all of our markets, where we're feeling like we can begin to kind of get on offense a little bit.
And start to press rents.
But its flavor so.
So we feel good about where we are we're hitting what feels like an inflection point.
Across the board on leasing activity and feel very optimistic going forward.
Not sure if I hit all of your different questions. So let me know if I missed something.
Thats good to hear on you.
You hit them, all alright through a lot of data on alright.
Quick question for you Greg on the 1200 does that go into redevelopment does that stay on the same store pool.
And do you have a kind of a value add redevelopment budget for that asset yet.
Okay.
Dave will move that asset once.
Southern vacated it out of the same property pool clearly.
<unk>.
It will go into the redevelopment bucket.
We haven't we're very far along on the redevelopment plans that we haven't disclosed the redevelopment budget yet.
Okay. Thank you.
Thanks, Dave.
Yeah.
Thank you again that we have a question please.
It will be on Star then 1.
Next question from Daniel Ismail Green Street Advisors. Please go ahead.
Great. Thank you alright, so office price hearing in the same ballpark appears to be improving recently.
<unk> cash.
Q3, GAAP, but I'm curious, what you're seeing in terms of land values across your footprint.
How are you keeping prices have changed for good office development sites across your footprint year over year.
Yes, Danny.
Good morning.
<unk>.
You are certainly starting to see interest in land in.
High quality urban sunbelt market.
Markets.
You've seen net interest grow and again I think it's in part due to a resurgence of office demand in this flight to quality.
That debt is continuing to accelerate and I think an appreciation for the underlying customer base for kind of newer and cooler.
And again more on monetized at the same time, you're starting to see the multifamily space become very active again I think we've all seen particularly this quarter.
LT family peers really start to demonstrate strong activity and leasing numbers and improvements in rental rates. So so I think there is competition.
<unk>.
From those folks once again and so on land values are.
Well.
Relatively dormant last year youre, starting to see that activity pick up and land prices are moving again hard to put a specific percentage on it I think so many situations are unique and different markets are.
But there is definitely upward pressure.
Great and then just a question on the differences between older vintage.
Newer products as well as class, a and class B cure.
Curious, if you're noticing any distinction on rent growth or concessions or tenant demand between.
Older and newer product in the sunbelt or is this just a situation of a rising tide is lifting all boats from us.
Everything in the Sunbelt is doing well or is there a meaningful distinction between those 2 property types.
Yes, Dan you are seeing.
Say a continued bifurcation even in even in.
Unique belt between.
Kind of rental rates and rental rate growth and net absorption between core.
All of the class a plus.
Trophy space and kind of newer vintage space versus kind of older commodity and suburban space.
On the Sunday I think if you drill down into each of our markets and you looked at the most recent quarterly statistics and.
And looked at kind of absorption by quality or age vintage you would see in many cases, the vast majority of kind of call. It a disproportionate share of the leasing activity.
Activity would be in those kind of higher quality assets.
On 1 thing I would just kind of point out as it relates to.
To.
Kind of cousins and our portfolio.
And what we have found that certain buildings that are of older vintage.
Have.
Sometimes be terrific opportunities to reinvest.
And bring an asset up to kind of today's standards. If they are in the right locations going on.
I have the right bones to on perhaps.
The kind of the right outdoor space et cetera.
<unk> and <unk>.
I would point to a project that we're doing right now here in Atlanta down at Buckhead Plaza, 1 and 2 which are which are older vintage assets, but said it right at Peachtree in West Paces ferry have terrific outdoor spaces, some of the best restaurants in Atlanta and.
And we're in the midst.
The nice repositioning of the ground floor kind of plain and outdoor space.
<unk>.
The underlying customer base in Atlanta is responding very favorably to that type of reinvestment and we're seeing very strong activity.
In that space.
So.
Again, I think as we.
Kind of taking assets that had probably fallen from that tier and are putting it back.
It's possible to do that even with older vintage assets, if it's got the right the right characteristics.
And then are you noticing any of your tenants or leasing.
<unk> signed recently or in your leasing pipeline migration.
On it some class b to class a buildings.
No question, you're seeing that and as I mentioned.
In my prepared remarks, absolutely youre seeing companies trade up.
You typically see.
See that kind of in any downturn, but I think that that trading up has been in the flight to quality has been a trend that was already underway prior to the pandemic and again I think it's it's.
I think large growing companies.
Recognizing what the future of office is and its collaboration and its culture. So they are trying to.
Prioritize and they are prioritizing that new cooler interesting space that their employees are excited to come back and be together and that was before the pandemic and I think it's.
Absolutely we will be after the pandemic.
Great. Thanks Al.
Thank you we will conclude our question and anthro cycle Malik from turn the call back over to Mr call on Colin. Please go ahead.
I want.
Thank you all for.
Your time this morning and continued interest in cousins properties.
Got any questions always feel free to reach out to us directly.
Self Greg eczema or Ronnie <unk>, we're always here to help and answer.
Questions that we can I hope everybody has a great weekend.
Thank you.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.