Q4 2022 Cousins Properties Inc Earnings Call
Good morning, and welcome to the cousins properties fourth quarter 2022 conference calls.
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Please note. This event is being recorded I would like to turn the conference over to Pam Roper General Counsel Council. Please go ahead.
Thank you good morning, and welcome to cousins properties fourth quarter earnings Conference call with me today is Colin Connolly, our President and Chief Executive Officer, Richard Hickson, Our executive Vice President of operations and greatest theme, our Chief Financial Officer.
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 the non-GAAP financial measures. The most directly comparable GAAP measures and of course Brideshead requirements. If you did not.
Give a copy these documents are available through the quarterly disclosures and supplemental SEC information link on the Investor Relations page of our website <unk> Dot com.
Please be aware that certain matters discussed today may constitute forward looking statements within the meaning of federal Securities law and actual results may differ materially from these statements due to a variety of risks uncertainties and other factors, including the risk factors set forth in our annual report on Form 10-K, and our other SEC filings.
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 he felt especially for potential risks is contained in our filings at the SEC.
With that I'll turn the call over to Colin Connolly.
Thank you Pam and good morning, everyone.
We had a strong fourth quarter at cousins to close out a productive 2022.
On the earnings front the team delivered 66 cents per share in SSO and same property net operating income increased two 5% on a cash basis.
Importantly, we leased 632000 square feet during the quarter with a seven 3% cash rent roll up.
Excluding Houston, where we signed a strategic 328000 square foot renewal and expansion with Apache the.
The cash rent roll up was 27, 7%.
For the full year 2022, we executed approximately 2 million square feet of leases with a nine 5% cash rent roll up these are terrific results.
Before providing an update on our strategy at cousins I will share a few observations on the macro environment.
First despite inflation.
I'll reserve and other central banks around the world have rapidly raised interest rates to slow economic growth.
Financial conditions have tightened.
In response companies are becoming more efficient.
In some cases this includes employing fewer people and reducing office space.
Second we are seeing an increase in office utilization.
According to castle physical law office occupancy averaged over 50% during the last week of January the highest since the start of the pandemic.
Boston, our second largest market led to survey at 68%.
As the health crisis fades and financial pressures grow.
<unk> are increasingly more focused on results and surveys.
Rebuilding culture collaboration and mentoring are now clearly priorities for innovative companies.
Return to office mandates have accelerated.
And this trend is likely to continue.
Third.
There is little to no leasing demand our capital available for older vintage lower quality office properties.
As a result, the values of these properties will likely reprice to facilitate a repurposing or even a tear down.
This process will take time to play out in.
In the meantime, these types of buildings will likely stagnate and having reduced impact on the overall office market.
Lastly, the pipeline for speculative new development projects is shrinking.
So what are the implications for office real estate.
In the short term leasing demand is likely to soften.
Expanding office footprints as challenging amidst shrinking head counts.
However, silver linings are taking shape.
The office market has begun the process to rebalance.
Our customers are returning in greater force.
Accelerated obsolescence is reducing the existing inventory.
New development is minimal.
And after companies right size and adapt to a more normalized world They will grow again.
Improving supply and demand fundamentals are not that far over the horizon for premier properties.
The trend of growing companies distributing their workforces across attractive.
Portable markets in the Sunbelt, it's still in the early innings.
The flight to quality continues.
Leasing demand is outsized for premium workplaces, and a monetized locations.
The puck is headed towards our Sunbelt Trophy portfolio.
Our conviction around our simple and compelling strategy to build the preeminent sunbelt REIT continues to grow.
As I mentioned market market conditions will likely become more challenging in 2023. However.
However, we built cousins to thrive during all phases of the economic cycle, we are exceptionally well positioned today, let me highlight why.
First we are the leading Sunbelt Trophy office portfolio in the best Submarkets in Atlanta, Austin, Charlotte, Tampa, Phoenix, Nashville, and Dallas.
Likely surprising to some of our customers are growing.
During 2022, our renewing customers expanded by 162000 square feet in total.
Importantly, our lease expirations through 2024 average just five 1% per year with annual contractual rent among.
Among the lowest in the office sector.
This positions us favorably to grow occupancy despite a softer market.
Next our $428 million development pipeline with the office component, 63% pre leased is appropriately sized and positioned for the current climate.
We will benefit from meaningful incremental NOI during 2023, and 2024, while having only modest speculative risk.
We approached 2022 with caution.
While asset values were repricing.
We intentionally and patiently prioritized, our best in class balance sheet over new investments.
Our net debt to EBITDA closed the year at four nine times.
This compares to the Green Street sector average of eight two times.
Importantly, we have no significant near term loan maturities.
Approximately $950 million available on our $1 billion revolving credit facility.
Simply put we have significant liquidity and capacity to pursue compelling new investments in a dislocated market.
Many peers now lack capital to compete.
In closing, we are mindful of the potential impacts of higher interest rates and a slowing economy.
However over the long term, we are optimistic that premier workplaces will separate into its own asset class with improved sentiment.
Cousins has an exceptionally strong position.
We were in the right Sunbelt markets, we own a trophy portfolio, we have a fortress balance sheet.
And our talented and creative team is a differentiator.
Before turning the call over to Richard I want to thank all of our employees at cousins and provide excellent service to our customers their dedication resilience and hard work continue to propel us forward. Thank you Richard.
Thanks, Colin and good morning.
Our operations team closed out 2022, with another solid quarter I'm very proud of our team for finishing the year well in the midst of a complicated macro backdrop.
We remain encouraged that the sunbelt migration and flight to quality trends are intact. Additionally, we are pleased to see more influential companies in a number of industries, calling for employees to spend more time together in the office. We expect this trend to continue.
For the fourth quarter, our total office portfolio weighted average occupancy and in this period, we used percentages were 87, one and 91%.
Respectively. Those numbers include. The addition of 100 mill and 92, 3% leased and occupied new development in Phoenix into the operating portfolio.
Our weighted average occupancy was down 2% in the quarter driven primarily by a couple of explorations and San Jacinto Center in Austin and.
And to the gateway and Phoenix, both of which have been partially backfill.
Our lease percentage increased almost almost a full percent from last quarter, largely driven by the recently announced 328000 square foot lease for Apache Corporation's New Global headquarters at Broadway Plaza in Houston.
Colin said, when we announced the suites. This highlights the importance of Premier workplaces, and foster employee collaboration and enhancing company culture.
Apache's employees will experience an engaging state of the art workplace when they arrive at Brier Lake and we're excited to be apartments.
In the fourth quarter, we executed 39 office leases totaling 632000 square feet with a weighted average lease term of 11 six years.
This was our highest quarterly square footage volume of 2022, and excluding new development. It was also the highest since the third quarter of 2019.
Our total signed activity for the full year was just under 2 million square feet.
Fantastic year of leasing for cousins.
The Apache lease was clearly a big contributor to our fourth quarter leasing volume. However, it also muted over always seem economics, given it was in the relatively weaker noncore Houston market.
Namely our leasing concessions defined as the sum of free rent and tenant improvements were elevated and weighed on net effective rents.
I'm pleased to say that even with our outsized leasing activity in Houston second generation net rents for all activity increased seven 3% on a cash basis and at the end of the fourth quarter and nine 5% for the full year.
I also want to share some of the metrics behind our fourth quarter leasing activity, excluding Houston in order to provide better insight into our core markets.
Excluding Houston activity, we executed 36 leases in the fourth quarter totaling 296000 square feet with a weighted average lease term of eight one years.
New and expansion leases represented 49% of total leasing activity.
83% of our activity net of Houston wasn't at Austin and Atlanta.
Activity was balanced in terms of industries.
Leasing concessions, excluding Houston, where $5.88 this COVID-19, 7% below our weighted average for the first nine months of the year further net effective rents this quarter were a company record $30 and 61 when excluding Houston.
Lastly, when excluding Houston second generation net rents increased 27, 7% on a cash basis in the fourth quarter.
From a broader market perspective, the flight to quality continues to bifurcate the market.
According to J O L assets built since 2015 saw $8 1 million square feet of positive net absorption last quarter and $33 8 million square feet in 2022.
J O. All research also found that assets less than 10 years old captured 14, 1% gross leasing activity. This past quarter, a 22, 6% increase in share compared to the previous cycle.
Even with the powerful flight to quality trend in our favor we are seeing some slowing in our leasing pipeline as macroeconomic uncertainty persists and demand from large technology companies pauses.
We expect that our total leasing activity is likely to moderate in 2023.
In addition to the softening economy, we have modest lease explorations in 2023 at only five 1% of our annual contractual rent.
Yes, we have fewer renewal opportunities during the year.
With a smaller sample size of leasing activity. There could also be more volatility in our leasing statistics quarter to quarter. This may, especially be the case with net rent growth, which is highly geared to the mix of lease size and geography.
For instance, we are in lease negotiations to renew our largest 2023 expiring customer and about 120000 square feet.
They are not a traditional office user and they're in place rent is escalated for a decade as a result, we expect their net rents to roll down modestly on renewal given.
Given the size and despite being a fantastic potential lease renewal for cousins. It could have an outsized impact on leasing metrics and one of the next couple of quarters.
With this anticipated renewal of our largest 2023 exploration.
Minimal explorations otherwise at about 625000 square feet of signed leases yet to commence in 2023.
We see a reasonable path to maintaining occupancy.
And hopefully growing occupancy towards the end of the year.
Moving to some market dynamics, the Atlanta Metro recorded 485000 square feet of net absorption last quarter, bringing the 2022 total to over $1 1 million square feet. The most in seven years. According to J O L.
Class a rents in the market were up 5% year over year, continuing to be driven by high OEM monetized newer and recently redeveloped buildings.
<unk> also noted that Midtown posted annual rent growth greater than 10% for the year.
We signed 92000 square feet of leases across all of our Submarkets in Atlanta This past quarter.
Rolling up cash rents over 10% on average.
And Austin.
Ll pegged market leasing activity last quarter, just below the pre pandemic average at $1 1 million square feet with positive net absorption for the fourth quarter and the full year.
We signed 153000 square feet of leases in Austin last quarter Rolling up cash net rents over 40% on average our activity included a 43000 square foot renewal and expansion of Adobe a technology customer at the domain.
J O. All research also side of that 80% of Boston leasing activity. This quarter occurred in leases for less than 10000 square feet.
An indication that leasing momentum could slow in Austin is larger requirements pause.
Fortunately our portfolio is 95% leased.
Has in place weighted average lease term of over six years.
And only eight 2% of our annual contractual rents in Austin expire through 2024 equally balanced between 'twenty, three and 'twenty four including only one exploration larger than 50000 square feet that was in the third quarter of 2024.
In the short term our portfolio is well insulated from softening fundamentals.
Long term Austin remains one of the most desirable cities in the nation to live and work with strong demographic and job growth drivers as the economy in the technology sector, a rebalancing, we expect Austin to be poised for strong growth.
In conclusion, our team had a strong finish to the year, despite increasingly challenging macro and macroeconomic headwinds.
Looking ahead, we are optimistic that great companies will continue to see high quality highly monetized office space as they increasingly bring employees back into the office cousins is well positioned for the long term with a stable high quality portfolio when the best Sunbelt markets.
Before handing it off to Greg I want to thank our talented team at cousins, whose hard work may 2020 to a successful year, we look forward to a productive 2023 together Gregg.
Thanks Richard.
Good morning, everyone I'll.
I'll begin my remarks by providing a brief overview of our results as well as some detail on our same property performance and parking revenues.
Then I'll move on to our capital markets activity and our development pipeline.
Followed by a quick discussion of our balance sheet before closing my remarks with information on our initial outlook for 2023.
Overall as Colin stated upfront fourth quarter numbers were really solid leasing velocity remained brisk second generation leasing spreads were up and same property year over year cash NOI was positive.
It was also a very clean quarter, there were no unusual fees gains or other items that materially impacted our results.
That being said interest expense was up significantly during the fourth quarter driven by higher interest rates daily chauffeur averaged three 6% during the fourth quarter compared to two 1% during the third quarter and only five basis points.
In the fourth quarter of 2021.
Focusing on same property performance for a moment.
Cash NOI during the fourth quarter increased two 5% compared to last year.
This continues a string of improvements during 2022 with the gains largely driven by our properties at the domain in Austin.
Looking forward, we anticipate same property NOI growth to be positive during 2023.
GAAP and a cash basis.
As our strong leasing over the past several quarters bears fruit.
As Colin mentioned earlier physical utilization has continued to increase and our parking revenues have grown along with it.
Parking revenues during the fourth quarter were the highest they have been since the first quarter of 2020.
And for all of 2022 parking revenues were up 10% year over year.
Turning to our capital markets activity.
During the fourth quarter, we closed on a new $400 million term loan.
With our existing banks indicate that matures in 2025 and includes $4 six month extensions.
We used a portion of these proceeds to pay off our maturing prominent tower and legacy Union mortgages.
During the quarter, we also refinanced the existing mortgages on our two terminal properties in Atlanta with the current lender.
Extending it from January 2023 to January 2031.
Looking forward, we only have about 1% of our total debt maturing in 2023, specifically, we have a mortgage tied to a medical office building adjacent to a hospital that is essentially 100% leased.
We own 50% of this Midtown Atlanta property through a joint venture with Emory University.
We've initiated the refinancing process and anticipate a late spring close.
Turning to our development efforts as Richard mentioned earlier, one asset 100 mill in Phoenix was moved off our development schedule during the fourth quarter.
Our current development pipeline is comprised of a 50% interest in new often national and 100% of domain nine and Austin.
Our share of the remaining development costs is $172 million $97 million of which will be funded by an in place new Hawk construction loan.
Leaving just $75 million will be funded by our operating cash flow over the next two years as these projects are completed.
Looking at our balance sheet net debt to EBITDA is four nine times among the best of our office peers.
Our liquidity position remains strong with only $56 million drawn on our $1 billion credit facility.
And our dividend remains well covered with an fad payout ratio of only 70% in 2022.
Our financial position is rock solid as we navigate these challenging economic times.
I'll close by providing our initial 2023 earnings guidance.
We currently anticipate full year 'twenty three <unk> between $2 52, a share and $2 64.
Share with the midpoint of $2 58.
No property acquisitions property dispositions. Our development starts are included in this guidance.
If any transactions do take place, we will update our earnings guidance Accordingly.
While there are no risks within our guidance around speculative property transactions.
Interest rates remain at risk for all rates.
Whether through variable rate debt exposure or pending debt refinancings.
As we have for many years, we used a sofa and treasury forward curve forecast interest rates.
To the extent these curves change, which they've been doing quite a bit lately.
So all of our interest expense.
That I will turn the call back over to the operator.
We will now begin the question and answer session.
Good question, Michael started one your telephone keypad.
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To withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to some of our roster.
Our first question will come from Anthony Powell with Barclays. You May now go ahead.
Hi, good morning.
A question on behalf of Nashville.
Your completion at the end of the year early next year.
Our leasing kind of conversations going there any change in how youre approaching leasing given kind of a changing office environment that'd be it.
There would be super helpful.
Hey, good morning, Anthony it's Colin.
New Hot project.
We remain incredibly excited about the the office component of that project is predominantly an adaptive reuse project and is that now is coming into shape and form.
Our.
We're starting to see increased activity and folks that can help kind of touch and feel and experience.
So we do have some conversations going.
With several prospective customers that.
That are encouraging.
Our hope is to sign some leases this year I do think if we signed those leases just given the time to build out space and occupancy would be towards the back half of the year and likely not have a meaningful impact.
On our 2023 numbers, but certainly we think can have a solid impact on our 2024 numbers.
Okay. Thanks, and maybe just what are you what are you seeing on the transaction environment as things get more difficult in the office space are you seeing more deals come to market I know that guidance, but maybe an update on.
Volumes cap rates, we should be helpful.
Yes.
<unk> market I'd say is still.
Somewhat on hold in terms of actively marketed deals, but we are starting to see a pickup in what I would characterize as off market discussions as.
As owners that don't have a strong capital structure ultimately need to fund either leasing costs or.
Deal with the upcoming loan maturity are starting to reach out and so youre seeing conversations happen and I'd say, there's still a bit of a bid ask spread between buyers and sellers, but as those capital needs become more in focus I think youll start to see a pickup in transaction activity and.
And start to find some price discovery as to where cap rates are.
Alright, thank you.
Our next question will come from John Kim with BMO capital markets you May not go ahead.
Thank you.
Richard mentioned in his prepared remarks, the slow leasing environment.
<unk>.
I guess basically saying that you're hopeful that you grow occupancy this year can.
Can you just clarify is that on a lease percentage basis. Our occupancy there is a 400 basis point spread currently you would think occupancy should be trending up this year because of that.
Hi, John This is Richard that's on occupancy.
Okay. So you have 400 basis point spread from leased occupancy.
One of those leases begin on that on that Delta.
Well I mentioned that we have about 625000 square feet.
For just 2023 signed leases that have not yet commenced and the weighted average kind of commenced but they all knows is in the Q timeframe.
Okay. So the remaining 400000 or so.
Just helpful to hold it.
I'm, just taking the difference between expiring and what Hasnt commenced yet yes, that's right.
Looking at the building blocks.
Again, given we have explorations that are really historically low and the timing of those which are more towards the back of the year.
Put that next to the Commencements that we just talked about that we feel like we're going to be able to through the year maintained and then hopefully.
Demand willing.
Build occupancy towards the end of the year.
And John some of the some of the Delta between our percentage leased and percentage occupied some of those leases are.
Ones that won't commence until 2024.
So some component of that.
Again, it will be a tailwind for us as we move into 2024. It will just get some component of that lift in 2023.
And Colin you mentioned.
Obsolescence in your markets is there any way you can quantify the percentage of the overall stock.
Obsolete in your different markets and what do you think could happen some of these assets.
That's a.
That's a million dollar question there John it is it varies by.
Market to market I'd say, certainly as you look at our Sunbelt markets I'd say that the average vintage of our properties as it is newer than what you would see.
And some of the gateway markets I think there is overall less obsolescence in our markets, but I'd still.
Again look at anything that was kind of built built before the 19 nineties as you get into that 80% and 70 vintage product and I think in some markets, it's anywhere from 10% to 20% of the inventory.
What happens to it I think it is going to need to reprice as I mentioned, there is very little capital or leasing demand for that type of product and so.
Eventually it will have to.
Reprice to a value that will allow you to either invest capital to convert it to anything from a residential property to a data center.
Two in some instances as it is just not.
The bones, just arent there it'll have to reprice to a tear down with some sort of.
New product built on that that process will take time, but I think importantly in the interim.
Properties are becoming less and less relevant to the overall office market and I think.
Effectively we will be removed from the inventory and I think that will help the overall rebalancing of supply and demand for premium properties.
My final question for Greg.
Just following up on new hub.
Just to remind us on your accounting treatment when you.
Bart.
Expensing the interest on that rather than capitalizing.
Okay.
Yes, we will capitalize interest on any development projects, including new off on the unoccupied space until the property has either been delivered for a year or it becomes 90% occupied.
Great. Thank you.
Okay.
Our next question will come from Camilo bundle with Bank of America. You May now go ahead.
Hi, Good morning, you.
You mentioned that the cash leasing spreads were significantly higher excluding the Houston leases was there any particular market driving the elevated levels and do you expect to continue signing leasing spreads at these levels.
I can make this Richard.
Yes, Austin has been in did in this quarter too.
Drive.
The Rollouts with Austin was over 10% or excuse me Atlanta was over 10% as well so.
Austin really as a driver there.
We again as I mentioned in my remarks.
We see some softening happening in Austin potentially in the near term so that could moderate but.
Really at the end of the day, So we've always said theres volatility.
And how we report those metrics based on lease mix and geography, so it's tough to predict quarter to quarter.
Okay. That's helpful.
And Greg I would like to get your latest thoughts on how you're thinking about your floating rate debt strategy I know you've spoken to in the past about being 20%.
As your target level, but the signs of the strengthening consumer I never bus job market.
There is risk that the fed continues to keep rates high if not increase them. So do you still plan to keep this level as a target.
Or what's your latest thoughts here.
Sure So you're right our long term target for floating rate debt as a percentage of total debt is right around 20% and that's where it is today at 21% as of year end.
We arrived at that level, let me take a step back that's consistent with by the way with the median curve the office space as well some are zero, but some are much higher if you take a look at the 20 <unk>.
Most companies out there the average is right around 20% so were not high or low relative to our peers that being said.
We do have some benefit of having some floating rate debt on our books not the least of which is that floating rate debt is oftentimes pre payable without penalty.
And when we're looking at our sources and uses we want to be able to be able to be opportunistic and so having the option of prepaying some debt without penalty.
Pretty powerful tool to have and so that's why we have that among other reasons is why we have some floating rate debt on our books.
I don't think youre going to see moved materially from 20%. It hasnt in the past 12 years I've been here, it's always been right around 20% I think it will remain there. It really is only comprised of three pieces of debt.
Our credit facility.
The term loan that we just issued and the new home construction loan that's it.
But it solves for 20% and it's something that we keep an eye on as well.
And I don't see changing going forward materially.
Okay. Thank you for taking my question.
Our next question will come from Michael Lewis with Truest, you May now go ahead.
Great. Thank you.
So Richard gave great detail on how concession looked high during the quarter because of the Apache lease in Houston, but the cost for the rest of the portfolio, we're actually very reasonable it looks like maintenance Capex was a little elevated to I don't know if that was also related to Houston, but my question is.
More broadly we're net effective rents are and where they might be going in your markets and creator buildings. You consistently have very strong rent spreads, but do you think it's possible for office net effective rents to grow over the next pick your time period, given what we all see for physical occupancy in tech layoffs and all of these apparent challenges for the industry.
Yeah.
Good morning, Michael It's Colin.
Our experience.
The last couple of years as you know there's been quite a bit of inflation in pressure on things like <unk> and so our overall concessions during that period.
The outlook there.
Escalated, but but we've been able to drive kind of face rents.
To offset that and so we have been able to grow net effective rents I think we're at a point in time, obviously, where the economy is softening potentially cycling.
And so as we look forward.
Yes, I think it's still too early to tell I would say the lease leases that we're working on today, we've characterize net effective rents as kind of flattish not growing them, perhaps like we were last year, but not yet coming in.
But typically in economic cycles, you do see that.
Effective rents soften.
But again I think as we look at the markets that we're in.
And we do believe as this process unfolds that we're kind of transitioning out of for trophy Premier <unk>.
<unk> out of this broader.
<unk> question around office into an economic cycle and so it goes down we think our markets like Atlanta, and Austin will be the first markets to recover as they did after the pandemic after that.
<unk> and we would expect that to continue so medium longer term, we remain very optimistic that the quality of properties that we owned in the locations that we own we're going to drive net effective rents up into the right over the broader period of time.
And then Colin you talked about cap rates.
Bid ask spread so I guess it poses to questions right on on the buying on the south So first on the sell now that Houston is the least.
Do you market that asset or do you wait for capital markets to kind of sort out and then on the other side of that you Werent acquisitive in 2022, but do you think this situation may be offers an opportunity to buy something or I don't know maybe your focus is still more on development.
Yes.
The great thing about the strength of our balance sheet is.
We've got a lot of Optionality, and we don't need to sell anything.
Because the balance sheet is so strong so if an opportunity presents itself to sell something for more than we think its worth we will certainly look at it but I would say more broadly speaking, we're looking at dispositions as a as a potential source of capital.
If we elect to pursue new investments to keep the balance sheet relatively leverage neutral.
But at the same time I do think we're going to see opportunities. This year, we were very patient last year thinking that prices would look better in 2023, and I think that I think thats going to hopefully prove correct and I think the closer.
I think some owners get to having to either fund leasing cost to preserve their asset value or deal with loan maturities.
Youre going to see that for some transactions that might be in the latter half of the year, but windows arise, we'll be poised and ready to.
To hopefully capitalize on some compelling opportunities.
Okay, great. Thank you.
Yes.
Our next question will come from Dave Rodgers with Baird.
May now go ahead.
Hey, guys, it's Nick on for Dave I guess, maybe starting off with Colin in the same vein on investment sales <unk> this portfolio positioning.
Through your recycling efforts over the past couple of years, you've kind of downside exposure in say like a Charlotte older vintage assets. That's also kind of increased your exposure to some of the more tech heavy.
So just like Atlanta, and Austin, I guess, just kind of how are you viewing the portfolio on a geographic positioning today and like what markets Youre looking to gain more exposure over time.
Yes.
Good question and I'd say the recycling over the last couple of years was was less focused on kind of the geographic.
Percentages and more focused on what we think is a.
The most important trend, which is the flight to quality and so we sold over $1 billion of older vintage higher Capex type properties that I described we've got growing obsolescence and reinvest that capital into terrific Trophy properties like 725 bonds and the rail yard in Charlotte.
But as we look at after completing that recycling youre right were I'd say a little under represented representative in some markets that we like a lot like Charlotte like Dallas.
So, we'll certainly be looking hard to find attractive opportunities to grow our exposure in those markets, but we continue to like Atlanta, and Austin and others and.
Despite a slowdown in tech activity again, our portfolio is incredibly well positioned and derisked in those markets and if the right opportunities arise we will certainly.
Capitalize and continue to grow in any of our markets.
Very helpful. And then maybe just a comment on or question on sublease space I know like areas such as the demand you have a long term Walt in those areas, but just curious on any of your particular properties that might have some sublease space that's listed.
Okay.
Yes, we've got some.
Some sub leasing.
There are some customers who have got some sub leases in our portfolio.
<unk> across the portfolio, but not but not as significant.
Number today and really as you look at it.
Domain, that's what I think people oftentimes focus on we've got some very large tech customers and <unk> 11, <unk> 12.
And <unk> will deliver next year Expedia.
Expedia has got a little bit of space in the 11 property out there our perspective on that is with long term leases with no termination options on any of those in the near term.
I actually wouldn't be a bad thing from a from a diversification standpoint, if some of those customers actually did multi tenant those buildings.
For us so we will continue to monitor the situations arise that are positive for us we'll work with them.
But as we stand today.
Not a material amount of assemblies.
Thanks Scott.
Thank you.
Our next question will come from Jay Pocket with Evercore ISI you may.
Now go ahead.
Hey, good morning, Thanks for taking my question I know that you guys have a pretty good size of land bank, a $160 million I am just kind of curious what your thoughts are on certain projects or any of the sites I know the guidance doesn't call for any development starts, but I'm just kind of curious what your thoughts are on utilizing some of these land and if youre not calling them starting in the next couple of years, what do you need to see in order to.
Change your mindset with those.
Yeah, I mean, we don't have a terrific land bank and we've always tried to size that land bank at between two and 3%.
Of the overall balance sheet to really give us the role.
The raw materials, if you will to start.
New development projects and we've found in the past that that if a customer comes to the market and you don't have a piece of land, it's hard to ultimately win win the business.
So we're about today about two 5% or so so we actually have a little bit of room, and we might see some land opportunities in this environment, but ultimately pulling the trigger on any of those projects, whether it's in office development or a residential development in the mixed use setting the return that's got to be appropriate relative.
Two the cost and the risk my sense is in the near term, we're going to see more attractive opportunities on the acquisition side, but again, you never know and there are some customers out there that we're talking to today that could be potential build to suit opportunities and so those will certainly be worthy of consideration.
Great. Thanks, that's all for me.
Again, if you have a question. Please press Star then one on.
Our next question will come from young Ku with Wells Fargo. You May now go ahead.
Great. Thank you I just I think you guys mentioned the largest lease exploration in 'twenty three about 120000 square feet you guys provide some additional color on that which marketing data.
Whether there would be new contractions are expansion associated with that space.
This is Richard its in Atlanta.
Again, it's in November of this year their existing square feet.
135000, so it's going to be a modest contraction so call it 90% of existing space renewal.
Got it thanks for that Richard and then just regarding your guidance for 23, what kind of retention rates are you guys assuming.
Yes.
As Colin.
We certainly do a.
A customer by customer buildup too.
To create our budget, but we're obviously in active discussions with a lot of different customers.
On potential renewals and so we've never publicly.
<unk>, our retention rates and just don't want to do anything that could compromise some of the negotiations that we're in the midst of.
Got it Okay. That's fair enough. Thank you.
It appears there are no further questions. This concludes our question and answer session I would like to turn the conference back over to Colin Connolly for any closing remarks.
Thank you all for your time today and interest in cousins properties. If you've got any follow up questions. Please feel free to reach out to <unk>.
Meg massena or Ronnie and though.
Hope to see you all soon thank you.
Yes.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.