Q3 2021 Cousins Properties Inc Earnings Call
Yes.
[music].
Good morning, and welcome to the cousins properties third quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
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 third 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 Gregg Eczema, our Chief Financial Officer.
A 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 wrenching requirement.
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 scenario.
And duration of the COVID-19, pandemic and the timing and strength of the recovery there.
The company does not undertake any duty to update any forward looking statements, whether as a result of new information future events or otherwise the full declaration regarding forward looking statements is available in the supplemental package posted yesterday and a detailed discussion of some potential risks is contained in our filings with the SEC with that I'll turn the call over to Colin Connolly.
Yeah.
Thank you Pam and good morning, everyone.
We began this third quarter with the expectation that our customers would begin bringing their teams back to the office post labor day.
Since then the Delta variant hit the Sunbelt part and created delays.
However, S cases have now significantly declined we're increasingly hearing from our customers that they plan to return towards the end of this year early next year, we are encouraged.
Our team delivered strong financial results during the third quarter here are a few highlights.
On the earnings front the team delivered 69 cents per share in SFO.
Same property NOI on a cash basis increased three 6%.
And importantly, we leased over 597000 square feet, including over 500000 square feet of new and expansion leases with.
With seven seven years of weighted average lease term.
And a net effective rent of $24.06 per square foot, which is higher than our 2019 average.
Second generation cash rents increased 23, 1% our strongest roll up since 2015.
And we ended the quarter with net debt to EBITDA of 4.54 times.
While the macro narrative around the office remains ambiguous or.
Our leasing performance highlights three office sector trends that are becoming quite clear.
First innovative and growing companies recognize that they are stronger in person at least most of the time.
In this persistent remote environment.
Employee attrition is at an all time high.
Contrary to many of the media headlines forward thinking business leaders are connecting the dots between the great resignation and eroding corporate cultures.
Thus companies are firming up plans for their return strategy and making long term real estate decisions that they were not prepared to make just a few quarters ago.
Second the migration to the Sunbelt has accelerated.
Cisco Visa Ark invest and Tesla are just the latest examples.
There are more in the pipeline.
The rapid urbanization of places like downtown Austin, Midtown Atlanta in the South end of Charlotte had changed the equation for companies previously located in more dense larger cities in the northeast and West Coast.
Sunbelt cities now offer a dynamic urban experience in addition to an attractive climate and the lower cost of living and doing business. It's the best of both worlds.
Lastly.
The flight to quality is intensified.
Earlier this week I toured our recently completed Norfolk Southern headquarters project with a local business leader.
His feedback.
Much better than working at home. He said it was simple and spot on.
The development includes innovative collaboration space neighborhoods for private working.
State of the art technology, and countless amenities all in the heart of Midtown Atlanta.
Our customers recognize that interesting and inspiring space will be a competitive advantage in retaining and recruiting talent as well as well as rebuilding culture and connectivity.
At cousins, we have a unique and compelling strategy that positions us at the intersection of these trends.
If the market moves faster we are responding.
Most recently, we acquired Heights Union, a 294000 square foot office property in Tampa for a gross price of $144 8 million.
The Heights neighborhood has emerged as one of the campus signature gathering spots, providing a unique live work play experience.
The two six storey buildings, which were completed in 2020 are highly monetized authentic inefficient.
Including Heights Union, we have invested approximately $1 1 billion in new acquisitions and development since the start of the COVID-19 pandemic.
We are excited about the Railyard in Charlotte 725, Ponce at Atlanta domain, nine and Austin and new horse in Nashville.
A representative of the office of the future.
Our all differentiated products in their respective markets.
During the same period, we have sold approximately $1 billion of non core properties, including Hearst tower, and one south in Charlotte and Burnett Plaza in Fort worth.
The net result of these strategic transactions are value add returns on a blended basis and a trophy portfolio positioned to capture outsized customer demand and a reduced capex profile.
As I mentioned earlier, we have completed the Norfolk Southern headquarters project.
The development was a highly profitable.
Development for cousins and a great outcome for our customer.
A true win win.
Nonetheless, we are excited to transition to the other side of this unconventional transaction.
The declining development fee stream has created challenging year over year earnings comps.
And the 370000 square foot lease expiration on December 31 of 1200 Peachtree created uncertainty.
Looking forward to 2022 and beyond our story sympathize.
And we are already making great early progress on our re leasing efforts at 1200 Peachtree as we are approximately 40% committed including LOI.
Richard will touch on this more in a moment.
In closing cousins is well positioned for the future.
We have assembled a troche portfolio and fast growing sunbelt markets.
We have organic growth opportunities within the portfolio as we drive occupancy gains and rental rate increases.
We have external growth opportunities and our $663 million development pipeline.
In addition, we had a well located land bank that can support another $2 6 billion in development, including over 3 million square feet of Trophy office and over 500 multifamily units.
Importantly, we have a rock solid balance sheet that provides financial flexibility and a highly capable team to execute on the strategy.
Before turning the call over to Richard I want to thank our entire dedicated cousins team who work hard every day to bring outstanding service to our customers and their talents to our company they.
They are the cornerstone of the company's success.
Turn it over to Richard.
Thanks, Colin and good morning.
This quarter, we continued to see economic recovery in our core markets and along with it an increase than we see in transaction activity in short our third quarter operational performance was strong.
While the pandemic still remains in the Delta variant delay they returned to the office for some we are encouraged by the demand for high quality office space across our markets.
Due to the Delta variance portfolio level utilization as we measure it did not significantly increase this quarter with that said there is noticeably more activity and energy at most of our properties compared to last quarter.
This is evidenced by a 27% increase in transient parking revenue quarter over quarter.
Turning to third quarter results, our total office portfolio lease percentage and weighted average occupancy came in at 91, 3% and 89, 8% respectively.
Our lease percentage increased 30 basis points this quarter, driven by new and expansion leasing activity at terminus and $33 50, Peachtree in Buckhead and at domain point in Austin.
Conversely weighted average occupancy declined 120 basis points with the impact of the previously disclosed move out of anthem at $33 50 Peachtree in Buckhead.
As for general leasing activity this quarter, our team and portfolio produced fantastic results, we executed 43 leases totaling 597000 square feet in the quarter and new and expansion leases were accounted for 84% of total activity.
Net effective rents were $24.06 this quarter, an improvement over the second quarter and 24 <unk> higher than our reported net effective rents for the full year of 2019.
Rent growth was outstanding this quarter as well with second generation net rents, increasing 23, 1% on a cash basis.
Similar to this time last quarter, we are still seeing encouraging activity in our leasing pipeline, both for our existing portfolio and new development.
Tour volume in our portfolio was on a clear upswing in the second quarter and it is held at the consistent level. Since then.
We are also optimistic about our sunbelt markets continued recovery as compared to the U S economy and the aggregate occur.
According to the urban land Institute every market lost jobs during the pandemic, but the recovery has been much quicker in sunbelt markets.
<unk> projects that by the end of the year those markets will collectively regained nearly all of their lost jobs in comparison to the greater United States, which is expected to still be down almost 2%.
Now I'll speak to some specifics about current conditions and activity in our markets I'll begin with Atlanta.
According to J O L. A atlanta saw positive net absorption this past quarter for the first time since the pandemic began at 756000 square feet. This is an encouraging milestone.
And our nearly 8 million square foot Atlanta portfolio, we signed an impressive 299000 square feet of leases in the third quarter.
That includes the previously disclosed 123000 square foot lease with visa at 1200 Peachtree in Midtown serving as Visa's, New Atlanta office hub.
We also have a final LOI in hand, with another potential customer at that property for 31000 square feet.
We view this activity of 1200 Peachtree is a strong validation of a truly irreplaceable location and quality of the <unk> repositioned assets.
Another example of demand for high quality and well <unk> properties as our Redeveloped Buckhead Plaza project producer.
Producing 121000 square feet of leasing activity year to date at record rental rates.
Our overall Buckhead portfolio also produced great activity this quarter accounting for 43% of our Atlanta leasing activity. This includes 29050 thousand square feet of new and expansion leasing at $33 50, Peachtree and terminus respectively.
At one of our newest Atlanta assets located in Alpharetta 10000, Avalon, We signed a 51000 square foot new lease after quarter end with fact, a newly public financial technology company, taking the building to 99% leased.
And Austin population growth continued to be strong as ever this quarter. Further costar showed a 496000 square foot decline this quarter in class eight total sublease space available for lease the unemployment rate in Austin. This quarter was at its lowest since March of 2020 with average asking rents in the <unk>.
Get climbing.
Our Austin portfolio was currently 95% leased with our $1 9 million foot square foot operating portfolio in the core of the domain at 100% leased.
With regard to leasing activity in Austin, we signed 236000 square feet of leases in the quarter, including a 73000 square foot new lease with a growing technology company at Colorado Tower, which will entirely backfill the exploration of <unk> at the end of January 2022.
And Charlotte are now one 4 million square foot Uptown in South and operating portfolio was well positioned at a solid 96, 1% leased with very little existing space available.
I can Austin Costar showed that Charlotte had a meaningful 139000 square foot decline this quarter in class a total sublease space available for lease.
According to J O L third quarter activity was robust in Tampa, where we recently acquired heightened union in the downtown Submarket.
According to CBRE as 2021 Tech talent report Tampa <unk>, 10th among both 50 largest tech talent markets with its millennial population, increasing by 14, 5% since 2014.
While average direct asking rents are down two 5% year over year overall mini class a buildings in the west shore Submarket, where the bulk of our portfolio was located have increased asking rates to at or above pre pandemic levels. We signed 41000 square feet of leases in Tampa This past quarter.
The greater Phoenix area as one of the few places in the country that now has more jobs than before the pandemic recovering 102, 6% of jobs since April of 2020.
When comparing year to date data versus 2019 Phoenix is also the second fastest growing metro in the country behind the Austin According to the greater Phoenix Chambers annual economic outlook.
While our completed activity in Phoenix was light this quarter. The recovery is reflected in our pipeline as we are currently in lease negotiations for 95000 square feet of new and expansion leases at our 100 mill New development.
Before handing off to Gregg I want to thank the committed and hardworking cousins team. They continue to Bruce great results and deliver excellent customer service I am grateful for all that you do 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 and our transaction activity.
Followed by a quick discussion of our leverage position before closing my remarks with updated information on our outlook for the balance of 2021.
As you can tell from colleagues remarks, we've been extremely busy.
We don't want all that positive transaction activity to <unk>.
Take attention away from our very solid operating performance during the quarter.
Leasing velocity in particular was outstanding while second generation cash leasing spreads were up the most since the fourth quarter of 2015.
Over the past two quarters, we signed almost $1 1 million square feet of leases.
With almost two thirds of that total representing new leases.
The ability to attract so many new customers to our properties is a powerful vindication of our class a sunbelt strategy.
However, it is a big decision for a company to open a new office, especially if they're coming from out of market. It is not easy.
Space planning to construction management to the endless logistical details surrounding moving existing employees hiring new employees and establishing a new address it all takes a lot of time.
Which means the typical period between lease signing and revenue recognition is extended compared to a simple renewal.
A significant portion of the new leases, we have signed over the last six months do not begin revenue recognition until late 'twenty two or early 'twenty three.
Attracting new customers to the Sunbelt is our competitive advantage. It often just takes time for this to turn into revenue.
Turning back to the third quarter results. Our same property performance continued to generate a significant and constructive change in trend.
NOI on a cash basis increased a very healthy three 6% over the last year and.
And excluding the single large move out that Richard talked about anthem departure from our 30 350 Peachtree property in bucket two new consolidated campus in Midtown Atlanta.
NOI on a cash basis would have increased five 3%.
The largest variable within our same property performance remains parking revenues.
After bottoming during the fourth quarter of 2020.
Same property parking revenues are up over 20% in the last three quarters, but still remained 20% below pre COVID-19 levels.
Focusing on our development efforts one assets domain 10, an office property, primarily leased to Amazon and the domain Submarket of Boston was moved off our development pipeline schedule and into our portfolio statistics.
While another asset neuhoff.
Our mixed used property in the German town Submarket of Nashville was added to our schedule.
Total development cost for new half are estimated to be $563 million.
With our joint venture interest representing 50% of that amount.
The current development pipeline represents a total cousins investment of $663 million across $1 9 million square feet for assets.
On the transaction front as Colin laid out at the top of the call we have been very active.
As this series of transactions has unfolded, we've maintained our net debt to EBITDA around four five 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.
Execute compelling transactions when the opportunity presents itself.
If and when we commence additional developments and will require additional properties you should expect us to continue to fund these investments on a leverage neutral basis over time.
On the capital markets, roughly close to $312 million construction loan for our new half development joint venture during the third quarter. This new loan matures in September 2025, and includes a potential one year extension option.
I'll close by updating our 2021 earnings guidance. We currently anticipate full year 2021, <unk> between $2 73, and $2 77 per share.
This is up a penny at the midpoint from our previous guidance.
This guidance includes all the transactions that have been discussed on this call.
There are no other dispositions acquisitions or development starts included in our guidance.
The most significant variable behind our guidance remains parking revenue or.
Our customers continue returning to the office during the third quarter and we anticipate maintaining this trend into year end.
Our current parking revenue assumptions reflect this outlook.
With that let me 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 your telephone keypad.
You're using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
The first question comes from Dave Rodgers of Baird. Please go ahead.
Yes, good morning, everybody. Thanks for all the information wanted to start with the Carlin and Richard maybe Big Picture question. I guess, you guys are making a number of trades within the portfolio upgrading also changing some locations changing building quality.
You guys have done this research during COVID-19 and have decided to kind of make some of these changes what are the factors that drove that and I guess I wanted to understand a lot of the acquisitions that you've made or the potential development theme like I would call a boutique type office, but what drove you to those decisions is that historically wasn't the direction that most companies went in in and kind of do you continue.
Expect to go that direction.
Hello, Good morning, David It's Colin and.
I appreciate your question.
FERC for us at cousins, our investment strategy I would say is firmly driven by <unk>.
<unk> back from our customers and in the decisions that they make around their real estate and what's important to them.
As they think about and on the right product in the rate environment to go recruit and retain that.
Talent and so as you mentioned, we have been very active throughout the pandemic, but candidly we were very active prior to the pandemic executing the same strategy, which has been to again meet our customers, where they are and the type of product that they want and.
Today, we continue to see a shift.
From our customers into <unk>.
They generally newer but the more interesting inspiring experiential and I'd say a monetized.
Type product in kind of unique mixed use settings, whether that be in an urban area like downtown or or out at.
Place like the domain and so we have with our investment strategy. It really has been I'd say a balance between strategic acquisitions of existing properties and some pretty compelling new development that from our perspective blends too.
Really attractive value add returns and I'd say, we have largely funded that with the sale of older vintage assets and so that has positioned us at the end of the day delivering those value add returns, but with a true trophy portfolio.
As I mentioned in my remarks is positioned to generate outsized demand.
And certainly with a with a lower capex profile I don't think just kind of generally speaking the type of properties that we've been buying.
And developing on average had been kind of 300 plus thousand square feet. So it's I don't know that I'd characterize them as boutiques.
I'd characterize them is exceptionally well located with a lot of really attractive.
Amenities and.
Really interesting and as I said inspiring environments.
Yes.
The next question comes from Anthony Powell of Barclays. Please go ahead.
Hi, good morning, so on the second generation pricing was very strong.
We look at other markets coastal markets, where we see vacancies and sublease space impacting pricing like in New York.
You go over I guess, the sub leasing of vacancy, but most of your major markets.
Describe how that maybe impacting some of the pricing youre seeing in those markets.
Well it is Colin as Richard mentioned in his remarks, we have seen sublease activity decline in and a lot of our major markets take for example, Austin, where the sublease activity or the <unk>.
Inventory I should say declined by almost 500000 square feet.
In the last quarter alone.
And I would characterize.
That reduction the vast majority of it has been customers that have just decided to take space off the market as they kind of rethink and revisit their return to the office and some component of it was just leased by other new customers, but I think what's been a differentiator.
For the Sunbelt and particularly our.
Dynamic urban Submarkets within our footprint has been the in migration.
New companies into our markets that are again looking for an alternative to the west coast or northeast and in many cases, our markets are not as reliant on mass transit.
Or kind of a long commute times driven by lack of affordable housing and.
So that makes it easier for our customers as they migrate into Austin or into Atlanta to adopt a more robust and in office strategy.
Got it thanks, and then how do you look at the development versus acquisitions at this point given supply chain issues you have some development activity, obviously in Austin and Nashville.
Are you more likely to do acquisitions in the year.
Future given it's harder to get stuff started and completed our development is still an attractive way to grow the company right now.
We continue to to look at both and again looking at our recent activity it has been.
A blend of both acquisitions and development you are right that there are.
There are supply chain issues kind of throughout the country and candidly throughout the world that are impacting a lot of businesses.
It's certainly something that we keep a very close eye.
On but mainly I want to congratulate our team who has done a fantastic job throughout the pandemic and the supply chain issues continuing to.
Deliver product on time and on.
On budget, and we're doing that by being more intentional.
And our work coordinating more closely with our general contractors.
Hubs in some cases stockpiling materials well in advance to allow us to stay on.
Those schedules.
And I think we're at here at cousins benefit from.
Our 60, plus year track record and a lot of deep relationships with with our construction partners.
In our certainly in our leveraging those relationships to do our best to be able to continue to stay on time and so I think as we look forward into 2022, we're hopeful.
Given the migration that we're seeing into our markets to take advantage of some additional development opportunities.
Alright, thank you.
The next question comes from Jamie Feldman of Bank of America. Please go ahead.
Thank you.
Yes.
Very impressive leasing spreads this quarter is that sustainable heading into next year.
Or is that more one time based on the mix this quarter.
Maybe just talk about your mark to market.
Hey, Jamie this is Richard.
If you look at our pipeline, we feel comfortable that we will continue to be able to to continue to post good rollouts.
This was a pretty exceptional quarter.
I think I think the best that we've we've posted in something like six years I think Gregg said so.
So I wouldn't expect us every quarter, but we feel good about our ability to continue to roll up.
The pipeline of activity across our markets.
It continues to be strong and so there is obviously <unk>.
<unk> of leases and how those work themselves out and ultimately get executed from quarter to quarter. So you can see some.
Obviously, some some variability.
Volume from from quarter to quarter, certainly depending on our exploration schedule.
But I think this is again second quarter in a row, where we've driven what I would broadly characterize as pre pandemic levels of leasing and.
And as we look at the pipeline of activity in front of US. It remains does remain strong.
Okay and are you able to estimate that mark to market in the portfolio right now.
We have.
You said for quite a long time that the mark to market in the portfolio somewhere between kind of 8% to 10%, we said that before the pandemic.
And and we've.
It delivered on that on average that range going all the way back to.
Really just after the Parkway transaction and so we're obviously doing a lot of leasing in bringing bringing some some of our inventory to market, but again, we are seeing.
Market rental rates continue to move in certain of our markets. So again, we're confident as we look forward over the next year or two that will continue to have.
Again variability quarter to quarter, but but positive mark to markets.
Okay. That's helpful. And then as you think about the types of products you want to own and the type of product you are now.
What percentage of the portfolio would you say is currently non core.
And.
I assume we should expect to see more dispositions.
And kind of portfolio repositioning acquisition going forward.
Should we be thinking about that.
Well again, we have had a.
We think a pretty unique and compelling strategy into.
To invest capital into.
And again.
Newer vintage primarily but interesting type type properties and have funded that largely to date through noncore sales.
We certainly.
Have not I Wouldnt say there is a specific percentage that that is non core I think as we see new opportunities to upgrade and can do it in a financially compelling way, we'll try to take advantage of those opportunities I do think stepping back just looking at the work that we've done.
From the Parkway transaction the tier transaction.
The specific property.
On acquisitions and development we are.
I feel very fortunate here at cousins that we have assembled.
One of the newest youngest portfolios across the office sector.
With an average age of 2004, so the overall portfolio quality is terrific.
But again as we see opportunities to.
Great and again can do it in a way that's that financially is compelling we'll look to take advantage of those opportunities.
Okay.
By financially compelling you mean earnings neutral or what do you what's your definition of financially compelling.
Jamie.
Theres various metrics that we look at in addition to upgrading the quality and certainly thinking about earnings both on a short term basis and a long term basis.
When we see properties that that perhaps.
Over time could have risk to its earnings stream based on the demand profile for that building, we certainly take into account short term earnings long term earnings.
And are also focused on net asset value and so it really is a balance here at cousins that we work really hard and I think as you look back over the last couple of years.
<unk> been able to do some of this recycling.
In a.
A positive way for our shareholders.
Okay, and then finally.
Just thinking about Midtown Atlanta, which has been incredibly busy on the job front.
How are you thinking about conditions there over the next couple of years with the supply picture.
And I know, you're making good progress at 1200, but do you think there'll be a supply concerns or do you feel pretty good about where things are heading.
Yes, we continue to feel very good about.
In Midtown Atlanta It is.
As you mentioned, it's been incredibly dynamic.
Dynamic.
In the market and.
The reasons for that our companies are recognizing that they can.
Attract.
Retained.
Some of the most the best Tech talent in the market, but also attracts diverse talent and so thats been a really positive I'd say win win for.
The market in talent base here in Atlanta.
And I would expect to see that continue the power and the draw of Georgia Tech is very strong and it's real.
So the demand.
While we think continues to look attractive and as we look at the supply picture today, it's actually relatively muted.
With the delivery of our Norfolk Southern building, there's really just two projects under development today in Midtown and one of those is over 50% pre leased to invesco.
So the supply demand fundamentals are actually.
Pretty strong.
If you look at it on a historical basis.
Okay, great. Thank you.
Thanks, Jamie.
As a reminder, if you have a question please press star one.
Question comes from Daniel Ismail of Green Street Advisors. Please go ahead.
Great. Thank you.
You mentioned earlier about having pre pandemic levels of leasing as well.
Peter is looking more towards.
Author and making decisions I'm, just curious how that plays out over the next call.
Over the next year or so.
Is it your sense that leasing volume across your markets returning to pre COVID-19 levels or woolworths mortgages still be.
Big quality bias with AIDS winning in the blogger.
Yes, I think there's a clear.
Flight to quality and it is intensifying and I do think it's likely to see continued bifurcation between.
The highest quality product and.
And b product as it relates to the.
Returning to the office, we are hearing from more of our customers that they are making plans to to return.
And I think that is translating into more leasing activity how that ultimately plays out will will take some time.
Youll see some various fits and starts in the Covid virus will will will highly impact.
How that plays out whether there is a resurgence.
Or not but I think many business leaders want their teams back together as I said most of the time.
You'd see some companies adopt a quote unquote hybrid model.
But it remains to be seen how much impact that that actually has on demand is as companies look for even in a hybrid model to generally have their teams together.
At the same time and so it will it will play out over some period of extended time, but as I said, we're encouraged to see the the leasing activity return.
As those business leaders start to plan for the future.
Okay.
Is it your sense of that.
Two leasing volume in aggregate across the sunbelt will be lower than pre COVID-19 averages.
Well I don't want to prognosticate.
Too far forward.
But.
But what I can share is we look at our pipeline today in our markets.
Both from kind of early stage and later stage it continues to be.
It continues to be positive.
And then as I said I think how that ultimately.
Plays out will I think be highly influenced by the virus.
But but at the moment, we continue to feel very good that activity is strong and we're optimistic that without kind of the future.
Flare ups that will continue to be very positive.
Great and then last one from me on development underwriting.
Touch on this a little bit earlier.
Construction costs heading up land prices likely up as well.
All that being offset by rental rate increases.
Pro forma rental rate increases.
Yes that certainly would be our hope right.
We are certainly.
Tried to remain disciplined as it relates to.
Our development yields.
And so.
As construction cost increase and they are increasing.
I think our hope is certainly that that rental rates increase with that at the same time, we have seen in the capital markets.
Cap rates for trophy properties continued to compress.
And so I do think that we will have some impact on development yields as folks think about kind of the spread and the margin between development yields and.
And.
And cap rates, but I think between kind of those two levers the increases in rental rates and some cap rate compression I think we are optimistic as I said earlier to to try to get some additional development starting next year.
Yes.
Got it thanks, Tim Thanks, Sean.
Thanks Danny.
I have a follow up question from Dave Rodgers with Baird. Please go ahead.
Hey, guys. Thanks for the answer earlier I'll go back and read it Unfortunately got cut off but I'm back had a question and if you already addressed it when I was out just let me know.
200 in Midtown obviously that transaction you executed pre Covid did you pursue a single tenant strategy. There one and then two I guess was there a change in how you anticipated the tech tenants to look at that I guess, meaning.
This movement towards ultra high quality from kind of the high Tech companies did that make that less attractive all of a sudden to kind of that group of investors that group of tenants than maybe you would've thought two or three years ago. So maybe a couple of questions rolled up in there about your tenancy.
1200.
Well.
We're we're.
Really excited about what we've got going on at 1200, Peachtree and I do think it will continue to attract tech interest.
I think kind of the overall mixing bowl of what customers find.
Compelling oftentimes it is newer vintage properties, but at the same time, some exceptionally well located assets.
At a key intersection like that is in Midtown.
With some of the redevelopment and repositioning that we're doing we're very confident we can transition that asset into the sweet spot of customer demand and as you look at our most recent lease with visa, obviously, a financial services company, but they obviously at the same time view themselves as a tech company in Fintech.
Company and I think that's a large driver there.
Theyre move here into into Midtown Atlanta, So, we'll we'll we're hopeful to see interest from a lot of different industry sectors, but I think we will see some additional we will see some additional technology.
In that in where we were absolutely open and interested do single tenant.
But when the opportunity came up with with visa.
And the quality and the strength of that company and it was too good of an opportunity to pass up.
Alright, thank you.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Colin Connolly for closing remarks.
Well. Thank you all for your time this morning, and your interest in cousins properties, we will look forward to having the opportunity to visit with many of you here in a few weeks at NAREIT and in the interim please feel free to reach out to myself Gregg eczema are running though if you have any follow up questions.
Have a great weekend.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.