Q3 2023 Cousins Properties Inc Earnings Call

Okay.

Good morning, and welcome to the cousins properties third quarter 2023 conference call.

All participants will be in a listen only mode.

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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.

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Please also note that this event is being recorded today.

I would now like to turn the conference over to Pamela Roper General Counsel.

Please go ahead.

Thank you.

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 Alright. Thank.

Thank you the vice President of operations, and Gregg <unk>, our Chief Financial Officer.

Yes 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 links on the Investor Relations page of our website at <unk> 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, putting 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 as a result of new information future events or otherwise.

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.

Thank you Pam and good morning, everyone. We had a strong third quarter at cousins on the earnings front. The team delivered 65 per share and SFO and same property net operating income increased four 6% on a cash basis.

We leased 548000 square feet during the quarter with a nine 8% cash rent roll up new and expansion leases totaled 189000 square feet.

In addition, we executed key renewals in Atlanta and Tampa. These.

These are terrific results in any market.

I will start with a few observations on the macro environment.

To tame inflation the federal reserve has rapidly raised interest rates more than 500 basis points over the past 18 months.

The impact of higher rates have been slow to materialize, but they're now upon us.

The economy is slowing and financial conditions have tightened.

Real estate debt and equity are less available and significantly more expensive.

As a result.

Meaningful bid ask spread has emerged in the investment sales market has temporarily frozen leading to a few relevant data points for asset pricing.

None of this should be a surprise. This is all typical behavior in a rate rate tightening cycle.

The macro narrative for the office sector is likely to get worse before it gets better.

Media will focus on rising vacancy rates and accelerating loan defaults.

This reporting will not be wrong. However.

However, it will be a significant over generalization.

As I said last quarter, where and what you invest in matters.

Over the last 12 years cousins has intentionally focused on investments in premier lifestyle office and mixed use properties located in vibrant and well amortize sunbelt neighborhoods.

This is an entirely different strategy than commodity office and older Downtowns and nondescript suburban locations.

Despite the challenging macro environment, we are seeing some positive trends in our portfolio I'll highlight a few.

First the return to work is gaining momentum.

Sentiment around remote work has shifted.

Company announcements mandating three four and in some cases five days a week of in person work are accelerating and finally require compliance.

In person activity has increased within our portfolio and we are seeing patterns begin to normalize in many properties.

As it turns out.

Lifestyle office properties are full of professionals, whose lifestyle center around working in the office at least most of the time.

Collaboration mentoring and serendipity are key to advancing their careers come visit one of our properties and Youll see a very different story than the next headline with castle data, which as an aside is proving to not be representative of trophy properties.

Second the flight to quality is becoming more pronounced newer vintage product is commanding most of the demand.

Over the last 12 months according to J O L.

Office properties built since 2010 are accounted for 114 million square feet of positive net absorption.

Properties built before 2000 tenants account for 346 million square feet of negative net absorption.

This statistic clearly captures the story.

Third the flight of capital is increasingly more important.

Historically landlords evaluated the credit of prospective customers today it goes both ways.

Prospective customers and their brokers are now evaluating the credit their landlords.

Sponsorship is more important than ever.

Not surprising owners like cousins with sound capital structures are growing market share.

Fourth there is little to no capital availability for older vintage lower quality office properties or for speculative new development.

So what are the implications for the office sector. There is a bifurcation in the market. It is not a one size fits all answer.

Many traditional offices are empty and will stagnate until they are repurposed or torn down.

At the same time lifestyle office is filling up and will thrive over the long term.

As I have mentioned previously the office is not dead.

Obsolete office as Deb.

Said another way.

The office market is not oversupplied <unk>.

Commodity offices under demolished.

The market and the media continue to underappreciated this.

There is opportunity for investors who do.

What does this mean for cousins.

Early green shoots are taking shape for our Sunbelt Trophy portfolio.

Our customers are returning in greater force.

Accelerated obsolescence is reducing competition.

The development pipeline is shrinking and demand remains firmly focused on the best lifestyle properties in the best Submarkets.

While it will take time the market has begun to rebalancing process.

Longer term the office sector is likely to reshape financial constraints are already creating pressure on many real estate platforms.

Thus market players are likely to change.

In addition, we believe that investors and the media will increasingly differentiate lifestyle office from commodity office. The fundamentals are just too different to be aggregated together.

And if capital remains constrained private market pricing will need to converge with public market valuations defined liquidity.

Similar public private pricing resets have occurred in past cycles.

Such a scenario would create a unique opportunity for a well capitalized public REIT light customers.

In closing we are realistic about the potential negative impacts of higher interest rates on the economy and our earnings.

However, we build cousins to thrive during all phases of the economic cycle and today, we are in an advantageous position relative to many of our other office peers.

We are in the right Sunbelt markets we.

We own a trophy lifestyle portfolio with modest near term lease expirations, we have a fortress balance sheet with minimal near term debt maturities and we have a well covered dividend I.

I believe that we have unique optionality at cousins and will see compelling opportunities across our sunbelt footprint.

However, the downward repricing of assets in the private market is still playing out. Thus we will remain patient disciplined and continue to prioritize driving cash flow and maintaining a strong balance sheet. We are watching closely though and we will be ready.

Before turning the call over to Richard I want to thank our entire team at cousins to provide excellent service to our customers their dedication resilience and hard work continue to propel us forward. Thank you Richard.

Thanks, Colin good morning, everyone.

Im pleased to report our operational results results. This quarter are solid across the board. We also continue to be encouraged by the growing number of companies asking employees to return to the office for the majority of the work week.

We believe this trend will continue as companies increasingly focus on collaboration employee productivity and overall efficiency.

Before reviewing results I want to talk about we work and SBB financial group.

As you've probably heard we work has stated that it is pursuing lease restructures with all of its landlords, including cousins.

We have four locations when we work totaling 169000 square feet and representing one 1% of our annualized rent at share.

As of today.

We work as one month past due on its rental payments to us it to Atlanta locations 725 horse and 120 West Trinity.

As a reminder, we are a 20% owner of 120 West Germany.

While it is no guarantee of the eventual outcome. We work is current on rent payments at the other two locations base.

Based on the weight status of rental payments at the two locations. We anticipate those two leases will be rejected in the event of a we worked bankruptcy.

725 parts, we use is 46000 square feet and 120 West Trinity Leeds is 33000 square feet of which our share is 6600 square feet.

Fortunately, we have meaningful letters of credit in place for both leases. We are confident that the high quality of those two underlying office properties would present us with a range of future alternatives for these spaces.

725 cost as one of the most dynamic new office buildings in Atlanta is located directly on the belt line in East Midtown and is currently 100% lease given that we expect to have an opportunity to either backfill with traditional office users. We used the spaces to a different flexible office operator, we're even continue work.

We work in an alternative structure.

Regarding SB financial group, our former 205000 square foot customer at Hayden Ferry, one in Phoenix consistent with our prior guidance SBB paid rent through September 30th and vacated the property Hayden Ferry one has since been taken out of operation as part of a broader redevelopment of the entire Hayden Ferry project.

As I've stated before we believe this redevelopment will redefine the standard of quality in the Tempe, Submarket and are excited about the opportunity to backfill Hayden ferry, one, especially given stv's average expiring rent was below market.

It's early but a number of interesting prospects of various sizes have already toured the space.

We anticipate the construction component of this overall redevelopment project will wrap up by the end of 2024.

Now for our operating results, our total office portfolio weighted average occupancy and the end of period vis percentage both increased four 3% this quarter to 88% and 91, 1% respectively. These represent our highest occupancy occupancy and leased percentage level since the end of 2021.

Despite national office leasing volume decline amid continued economic uncertainty our team was able to deliver our highest quarterly leasing volume of 2023.

The third quarter, we completed 32 office leases totaling 548000 square feet with a weighted average lease term of eight six years.

<unk> of those leases were new and expansion leases and leases over 10000 square feet represented over 80% of our total activity.

Our higher volume this quarter included two important sizable long term renewals one for 121000 square feet at $33 48, Peachtree in Atlanta, and another for 112000 square feet at corporate center in Tampa.

The latter was a somewhat early renewal with that customer previously due to expire in early 2025.

With this quarter's leasing activity, we now only have 15, 1% of our annual contractual rent expiring through the end of 2025, including only five 6% in 2024 further no more than 10% of our annual contractual rent expires in any given calendar year.

<unk> through 2030.

We're pleased with our lease expiration profile and the stability it should provide our operating portfolio in the near term.

Average net rent this quarter came in at $33.94, which was sequentially lower but substantially in line with our full year 2022.

However, average leasing concessions defined as the sum of free rent and tenant improvements were also lower at $7 57, and about 9% below our last four quarter run rate.

As a result average net effective rent remained strong at $23 77, SaaS only about 2% below our last four quarter run rate.

Lastly, second generation net rent growth improved this quarter coming in at a strong nine 8% on a cash basis. We also saw cash net rent grow in every market this quarter.

Again these results are solid across the board.

Now for a quick update on our leasing pipeline.

Our late stage, we've seen pipeline consisting of leases currently in negotiation.

Fits in line with last quarter at approximately 615000 square feet. As a reminder, our late stage pipeline remains almost double what it was at the beginning of 2023.

We also continue to be pleased with our medium and early stage pipelines with overall tour activity up again relative to the prior quarter.

As we look across the sunbelt, we see firsthand in our portfolio, but the highest quality office buildings that provide occupants with a better lifestyle. While at work continue to outperform this is very evident in Atlanta as J O L. A as noted and Atlanta assets built since 2010 have absorbed $5 1 million square feet of space.

Over the last three years, while assets built prior to prior to 2010 saw over $12 2 million square feet of negative absorption.

In our Atlanta portfolio. This quarter, we signed a 257000 square feet of leases with over 80% of the activity in Midtown and Buckhead further 49% of our leases signed in Atlanta. This quarter were new and expansion leases. Our recently Redeveloped Promenade campus in Midtown continues to see strong.

Long activity with over 219000 square feet of leases signed there year to date I'm also excited to report that this quarter, we signed a 25000 square foot expansion with snowflake at terminus 200 in Buckhead and the way. We are also in lease negotiations for 57000 square feet of new occupancy at 33.

50, Peachtree in Buckhead, the ladder as a nice validation for another one of our recently Redeveloped properties.

In Nashville, we remain encouraged by the office and retail interest our new Horst mixed use development.

No new leases were signed this quarter, we have almost 60000 square feet of leases in negotiation of which 49000 square feet is office. In addition, we continue to have a robust prospect list with over 140000 square feet of active proposals currently outstanding.

The momentum at this project continues with exciting retail announcements on the horizon and the apartment is set to open early next summer.

Finally, I want to reiterate that our Austin portfolio is very well positioned to weather the near term supply challenges coming into view in that market at the end of the third quarter. Our Austin portfolio was 94, 6% leased with relatively little availability, Luis and no material near term explorations and <unk>.

Joining five nine years of weighted average lease term, our Austin team signed 45000 square feet of leases this quarter rolling up cash net rents 24, 9%.

Before handing it off to Greg I want to thank our best in class operations team for the great work. They do every day each of you played truly critical role in our continued success Greg.

Thanks, Richard Good morning, everyone I'll.

I'll begin my remarks by providing a brief overview of our results as well as some details on our same property performance.

I'll move on to our development pipeline, followed by a quick discussion of our balance sheet.

Before closing my remarks, with an update to our earnings outlook for the balance of 'twenty three.

As Colin stated Upfronts, our third quarter earnings were solid and the operating economics behind them remained very strong.

Second generation cash cash leasing spreads were positive for the 38 straight quarter, it's over nine years of uninterrupted rent growth.

Leasing velocity accelerated and same property year over year cash NOI increased it was also a very clean quarter.

The only item of note was a noncore land sale in Atlanta for $4 $3 million that generated a gain of approximately half a million dollars.

Before discussing same property numbers.

Wanted to take a moment to step back from this quarters results and look at our performance since the onset of Covid.

While <unk> has been flat.

It was <unk> 64 per share in the second quarter of 2020, excluding Norfolk southern fees compared to <unk> 65 cents a quarter. This quarter excuse me six five cents per share this quarter.

Quarterly ally has actually steadily increased over this period of $18 million or 15%.

So why is <unk> up as well the answer is higher interest expense.

I point this out to highlight the underlying cash flow growth from our properties over the past three years we've.

We've driven cash flow through increased rents and the completion and lease up of new developments and Redevelopments.

As Colin pointed out earlier trophy lifestyle office buildings in the Sunbelt continued to perform well, which is often lost in the negative headlines around the office industry in general.

Yeah.

Moving to our same property performance cash NOI increased four 6% during the third quarter compared to last year.

<unk> revenues increased 60 basis points, while expenses decreased 6% driven by a lower property taxes.

In addition to our recurring appeals of tax assessments.

Our portfolio also benefited this quarter from the well publicized tax cuts in Texas that are expected to be approved by voters next month and reflected in 2023 tax bills.

The majority of our savings was recognized in Austin, which.

Which is largely a triple net market and therefore, a lower property taxes.

<unk>, both our revenues and our expenses during the quarter.

Turning to our development efforts. The current development pipeline is comprised of a 50% interest in new Hoffman, Nashville, and 100% of domain nine and Austin.

Our share of the remaining development costs is $90 million.

55 of which will be funded by our new Hawk construction alone, leaving only $35 million to be funded by our operating cash flow.

Before moving to our balance sheet I wanted to take a moment to point out a change we made to the development pipeline report on page 25 in our earnings supplement specifically, we've adjusted the definition of stabilization dates to reflect the actual estimated stabilization for each development project previously.

The stabilization dates reflected earlier up one year after completion or estimated stabilization. This is a GAAP concept that dictates capitalization policy and practice it proved to be confusing for many investors since the one year deadline typically came before actual stabilization.

Hopefully this new disclosure is helpful.

To be clear, we've not changed the estimated stabilization dates on our developments and progress we have simply improved the disclosure around these days.

Looking at our balance sheet net debt to EBITDA is an industry, leading five times, our liquidity position remained strong with only 144 and a half million dollars outstanding on our $1 billion unsecured credit facility.

And our debt maturity schedule is well lathered with no remaining maturities in 2023.

Looking at 'twenty, four and beyond our debt maturity schedule has three pieces of debt with extension options first.

First we have a $350 million term loan with an initial maturity in August of 24 that is for six month extensions.

We have a $400 million term loan with an initial maturity of March 25 at a four month extensions as well for six month extensions as well and.

And third our new house construction loan has an initial maturity at September two 2025 as a single one year extension option.

When taking these three extensions into account.

Our next significant debt maturity is not until July 25.

Our debt maturity schedule is laid out including all extension options on page 28 of our financial supplement.

I'll close by updating our 23 earnings guidance. We currently anticipate full year 'twenty three <unk> between $2 60, and $2 64 per share with a midpoint of $2 62 per share.

This is up from our previous midpoint of $2 61, and represents the third quarter in a row that we've increased the midpoint of our <unk> guidance no property acquisitions property dispositions. Our development starts are included in this guidance.

The increase was primarily driven by two items first as I outlined earlier in the call we have reduced our property tax assumptions for the year second we've included the gain on land recorded during the third quarter and our annual numbers.

Guidance does not include any impact from our four we workplaces as Richard outlined earlier, we have we've assumed two leases will be rejected in a potential bankruptcy and two leases will survive.

The letters of credit for the two rejected leases that cover all balance sheet exposure and lost revenue for the remainder of the year.

As with any potential bankruptcy things are fluid and they can change quickly.

If our assumptions concerning we work materially change, we will provide a timely update.

Guidance also does not include any payment of our unsecured claim and the STB bankruptcy case, which we currently estimate to be approximately $10 million.

The exact amount and timing of recovery against this claim is not yet known but unsecured SBB bonds are currently trading between 55 and 60 cents on the dollar. So we do anticipate there will eventually be significant value in this claim.

Bottom line, our third quarter results were solid.

Our strong leverage and liquidity position remains intact, and we are raising <unk> guidance.

With that let me turn the call back over to the operator for your questions.

We will now begin the question and answer sessions.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will take our first question will come from Blaine Heck with Wells Fargo. Please go ahead.

Great. Thanks, Good morning, I'm, Richard your detail on each of the markets is very helpful. But I guess, just taking a step back can you talk a little bit more generally about which markets in your portfolio you'd say are showing kind of the most of the ability from an occupancy and rent standpoint, and which might be weaker or weakening and maybe some of the reasons for it.

The relative strength or weakness.

Sure good morning.

So I think my answer is very similar to what we talked about last quarter I think all of our markets have some positive dynamics in play, but there are competing dynamics as well with rising interest rates and then people returning to work. So a lot of undercurrents, but I continue to point out that Atlanta.

It's been very healthy and strong for us.

For all of 2023.

We executed a lot of leasing volume for its size and Tampa and continue to feel like Tampa.

As dissuading as much as any market the bifurcation between quality and kind of everything else sort of flight to quality dynamic there is very much in play.

Let's say the same thing for for Phoenix as well, we've had really encouraging tour activity there.

And conversion to leasing activity so.

Unknown Executive: Good morning and welcome to the Cousins Properties 3rd quarter, 2023 conference call. All participants will be in a listen only mode. In should you need any assistance today, please signalling conference specialist by pressing the star key followed by zero.

Positive things to say about every market Austin, obviously, we've called out in the past and continue to flag. The fact that there are supply challenges.

And our volume has not been as strong there.

Unknown Executive: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than one on your touchstone phone. To withdraw a question, please press star, then two. Please also note that this event is being recorded today.

This year, but at the same time, we don't have a lot of vacancy available to lease.

And we're in a very good position with a lot of stability. So.

We can weather the cyclical dynamics there.

Well.

Pamela Roper: I would now like to turn the conference over to Pamela Roper, General Counselor. Please go ahead. Thank you.

Great that's really helpful and then Colin.

I understand there are very few transactions to point to in the investment sales market, but can you talk about how your internal return hurdles on new investments have changed with the increase in capital costs, and whether or not there are any interesting opportunities that might be emerging on the acquisition side of things.

Pamela Roper: Good morning and welcome to Cousins Properties 3rd quarter, earnings conference call. With me today, our column Connolly, our president and chief executive officer, Richard Hickson, our executive vice president of operations and Gregg Adzema. Our chief financial officer, the press release and supplemental package were distributed yesterday afternoon, as well as furnished on form 8K. In the supplemental package, the company has reconciled all non-GAF financial measures to the most directly comparable gap measures in accordance with RegG requirements.

Well I would definitely say our return expectations have gone up.

I think it's I think it's still too early.

To precisely define.

Pamela Roper: As you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SAC information links from the investor relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward-looking statements within the meeting of federal securities laws, and actual results may differ materially from these statements due to a variety of risks and uncertainties in other factors, and putting the risk factors set forth in our annual report on form 10K and our other SEC file.

Our specific kind of cap rate or unlevered IRR, because the market continues to be so fluid and I think until there's some stability.

Putting aside the actual nominal kind of interest rate until there's some stability in terms of the direction of rates I think that will continue to be full.

Fluid, but we are starting to see an uptick in opportunities that we are tracking.

Pamela Roper: 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 contained in our file is with the SEC.

In many cases.

It is.

Still a bit early to insert ourselves in those opportunities because there are.

I'd say capital structure.

Dynamics that are still playing out between <unk> and <unk>.

Many cases owner and lenders or mezz lenders, but we are tracking a number of situations that are going to require outside capital.

Colin Connolly: With that, I'll turn the call over to Colin Colley. Thank you, Pam, and good morning, everyone. We had a strong third quarter at cousins. On the earnings front, the team delivered $0.65 per share in FFO and same property net operating income increased 4.6% on a cash basis. We leased 548,000 square feet during the quarter with a 9.8% cash rent roll-up. New and expansion leases totaled 189,000 square feet. In addition, we executed key renewals in Atlanta and Tampa. These are terrific results in any market.

And I think could be interesting opportunities, but we need to be patient and wait for.

The right time.

Great. That's helpful. Thanks, guys.

Thanks Blaine.

Our next question will come from Jay <unk> with Evercore ISI. Please go ahead.

Hi, Good morning. Thanks for taking my question I was wondering if you could break down the leasing pipeline just between new and renewals and kind of how that.

Colin Connolly: I will start with a few observations on the macro environment. To tame inflation, the Federal Reserve has rapidly raised interest rates more than 500 basis points over the past 18 months. The impacts of higher rates have been slowed and materialized, but they are now upon us. The economy is slowing, and financial conditions have tightened. Realistic debt and equity are less available and significantly more expensive. As a result, a meaningful bid-ass spread has emerged, and the investment sales market has temporarily frozen, leading to few relevant data points for asset pricing. None of this should be a surprise. This is all typical behavior in a rate-rate tightening cycle.

Just breakdown has changed over the past couple of quarters.

Sure.

This quarter, we executed 35% of our activity was new and expansion. If you look to the late stage, we've seen pipeline.

New and expansion, we'll kind of pop up back to the levels. We've seen prior to this quarter, so kind of a little over 50%.

And Jay it's Colin that that those numbers will fluctuate quarter to quarter and really what drives that is going to be.

Kind of the exploration schedule and based on that exploration schedule, that's really going to drive what our renewal activity looks like.

So.

It will fluctuate quarter to quarter.

Great. Thank you and then I know that the <unk> sorry.

Colin Connolly: The macro narrative for the office sector is likely to get worse before it gets better. Media will focus on rising vacancy rates and accelerating loan defaults. This reporting will not be wrong. However, it will be a significant over generalization.

Sorry, your exploration and 24 are relatively muted, but do you have any large known move outs as we look ahead to next year.

Yeah.

And next year.

We have a low percentage of explorations and we also have very few large explorations and so looking forward to next year, we really just have one customer.

Colin Connolly: As I said last quarter, where and what you invest in matters. Over the last 12 years, Cousins has intentionally focused on investments in premier lifestyle office and mixed use properties, located in vibrant and well-emetitized sunbelt neighborhoods. This is an entirely different strategy than commodity office in older downtowns and non-descript suburban locations.

Within the portfolio, that's over 100000 square feet and that would be accruing at domain four we talked about that in past quarters. Our expectation. There is that there are likely to significantly downsize or leave and again, it's a little over 100000 square feet in August of 'twenty four but.

Colin Connolly: Despite the challenging macro environment, we are seeing some positive trends in our portfolio. I'll highlight a few. First, the return to work is gaining momentum. CEO sentiment around remote work has shifted. Company announcements mandating three, four, and in some cases five days a week of in-person work are accelerating and finally require compliance. In-person activity has increased within our portfolio and we are seeing patterns begin to normalize in many properties. As it turns out, lifestyle office properties are full of professionals whose lifestyle is centering out and working in the office, at least most of the time.

Just to point out.

And I think many of you all had toured domain for that that's one of the original vintage single storey buildings in the domain that sits directly on rock rose the main retail and entertainment.

Avenue with within the domain and it's arguably the best land site that we have in the domain and so.

It ultimately might be more valuable to us as as land than trying to aggressively renew that space at least for the long term, perhaps a short term.

Lease would be in the cards, but it's a terrific land site for us.

Outside of that the only other.

Colin Connolly: Collaboration, mentoring, and therapy are key to advancing their careers. Come visit one of our properties and you'll see a very different story than the next headline with castle data which has been aside is proving to not be representative of trophy properties.

That's a significant exploration debt that we have next year is NASCAR media.

Which is about 77000 square feet that expires in the end of February next year again, we've talked about this many times in past quarters.

Colin Connolly: Second, the flight to quality is becoming more pronounced. Newer vintage product is commanding most of the demand. Over the last 12 months, according to JLL, Office properties built since 2010 have accounted for 114 million square feet of positive net absorption. Properties built before 2010 account for 346 million square feet of negative net absorption. This statistic clearly captures the story.

Net NASCAR did a long term renewal for some space at our 550 South project. The 77000 is going to be relocated into a new facility that they are building out the at the racetrack and so it was originally scheduled to expire this year. They extended it into next year to line that up with the delivery of their their new meal.

Center.

And so there's a really yet for next year.

Colin Connolly: Third, the flight to capital is increasingly more important. Historically landlords evaluated the credit of prospective customers.

Great. Thanks, that's all for me.

Yes.

Colin Connolly: Today it goes both ways. Perspective customers and their brokers are now evaluating the credit of their landlords. Sponsorship is more important than ever. Not surprising, owners like cousins with sound capital structures are growing market share. Fourth, there is little to no capital availability for older vintage lower quality office properties or for speculative new development.

Our next question will come from <unk> with Keybanc. Please go ahead.

Alright, Thank you for taking my question so.

So you had the real estate tax savings in your prepared remarks.

Can you maybe break that down by many market, where youre seeing that and maybe any potential.

Other cost reduction plan that you're working on that can help support cash flow either this year and next year.

Sure <unk>.

Greg the vast majority of our property tax savings this quarter were in Texas.

Colin Connolly: So what are the implications for the office sector? There is a bifurcation in the market. It is not a one size fits all answer. Many traditional offices are emptying and will stagnate until they are repurposed or torn down. At the same time, lifestyle office is filling up and will thrive over the long term. As I have mentioned previously, the office is not dead. Absolute office is dead. Said another way, the office market is not oversupplied. Commodity office is under demolished. The market and the media continue to under appreciate this. There is opportunity for investors who do.

The vast majority of what we own in Texas in Austin, So the savings were primarily in Austin.

It hasnt been approved yet, but it will be overwhelmingly approved by voters here in a couple of weeks.

Once that happens it kind of resets the bar and so.

As we do with any accrual.

We caught up three quarters. The first nine months of the year. This quarter. So you saw kind of nine months.

Cruel adjustment pushed into three month reporting period in the fourth quarter will just be a one month reporting periods. So it will still will still enjoy some savings, but it won't be quite as large as it was this quarter and that we've reset the bar in Texas going forward. So it's a favorable kind of outcome that has legs moving forward for us we haven't seen.

Colin Connolly: What does this mean for Cousins? Early green shoots are caking shape for our Sun Belt Truthy Portfolio. Our customers are returning in greater force. Accelerated obsolescence is reducing competition. The development pipeline is shrinking and demand remains firmly focused on the best lifestyle properties in the best submarkets. While it will take time, the market has begun the rebalancing process.

Anything large like that in any of our other markets know statewide or market wide adjustment to kind of the property millage rates or property tax policy in general, but you know you take a step back and we all realize what's happening to office values here. So we should be successful just in general.

Colin Connolly: Longer term, the office sector is likely to reshape. Financial constraints are already creating pressure on many real estate platforms. Thus, market players are likely to change. In addition, we believe that investors and the media will increasingly differentiate lifestyle office from commodity office. The fundamentals are just too different to be aggregated together. In it, capital remains constrained. Private market pricing will need to converge with public market valuations to find liquidity. Similar public-private pricing resets have occurred in past cycles.

<unk> appeals of property tax assessments going forward.

So.

There are certainly some headwinds on the expense side for office owners, just general inflation as well as people returning to the office, but on the property tax side.

We're going to have those same headwinds.

Okay, great. Thank you.

So for my next question you kind of highlight all your strong balance sheet and your.

A strong liquidity are you still going to focus on liquidity or do you think that maybe you can start putting some some of that to work maybe in buybacks or some other other places.

Colin Connolly: Such a scenario would create a unique opportunity for a well-capitalized public read like Cousins.

Yes, it's Greg again, as Colin talked about just a few minutes ago, we value.

Our liquidity at the moment.

Colin Connolly: In closing, we are realistic about the potential negative impacts of higher interest rates on the economy and our earnings. However, we build Cousins to thrive during all phases of the economic cycle. Today, we are in an advantageous position relative to many of our other office fears. We are in the right sunbelt markets. We own a trophy lifestyle portfolio with modest near-term lease expirations. We have a fortress ballad sheet with minimal near-term debt maturities.

We've always maintained liquidity and these are the periods of the cycle.

Tremendous value and so we're going to be patient and disciplined before we deploy it there will be opportunities to deploy it.

But we're going to be very thoughtful.

Treated as a competitive advantage because it is one.

And so we'll look at each opportunity as they arrive.

Things are starting to come kind of come over the threshold.

The pace is increasing slightly and we're optimistic going forward that will have a chance to do something with that liquidity.

Colin Connolly: We have a well-covered dividend. I believe that we have unique optionality at Cousins and we will see compelling opportunities across our sunbelt footprint. However, the downward repricing of assets in the private market is still playing out. Thus, we remain patient, disciplined, and continue to prioritize driving cash flow and maintaining a strong balance sheet.

Great. Thank you that's helpful.

Okay.

Our next question will come from Camille Barnell with Bank of America. Please go ahead.

Hello.

Follow up questions on the balance sheet.

First more generally in today's market, where do you see the most attractive places to base capital.

Colin Connolly: We are watching closely, though, and we will be ready.

Colin Connolly: Before turning the call over to Richard, I want to thank our entire team of Cousins who provide excellent service to our customers. Their dedication, resilience, and hard work continue to propel us forward.

Camille well it depends on what type of capital that we're talking about.

At the moment equity capital is August.

Priced at levels that us and other office Reits would find it.

It's not useful.

So I don't think youre talking about raising equity at the moment on the debt side.

Colin Connolly: Thank you.

Richard Hickson: Richard? Thanks, Colin.

What has emerged is if you have the right assets.

Richard Hickson: Good morning, everyone. I am pleased to report our operational results this quarter are solid across the board. We also continue to be encouraged by the growing number of companies asking employees to return to the office for the majority of the work week. We believe this trend will continue as companies increasingly focus on collaboration, employee productivity, and overall efficiency.

You can obtain mortgages on those assets. The ltvs are lower the spreads are higher than they have historically been but there's that available for the right office buildings and that's probably the most cost effective debt available at the moment unsecured debt, whether it's a private placement execution more on investment grade bond execution.

Richard Hickson: Before reviewing results, I want to talk about we work and SBB financial group. As you have probably heard, we work has stated that it is pursuing lease restructures with all of its landlords, including Cousins. We have four locations where we work, totaling 169,000 square feet, and representing 1.1% of our annualized rent at SHARE. As of today, we work as one month past due on its ripple payments to us at two Atlanta locations, 725 Ponds and 120 West Trinity.

Typically be more expensive and you've seen there hasnt been much liquidity, but you've seen some liquidity on both of those fronts generally kind of see the pricing on that.

In terms of you know kind of alternate sources of liquidity might be a joint venture or something like that.

I think that also has become more difficult than it has been historically and.

There's limited liquidity out there the typical joint venture partners are I think have taken a step back from the office market. The moment and they are trying to figure out where pricing will actually occur when liquidity returns I don't think theyre going to be at the forefront of it I think they're going to be watching.

Richard Hickson: As a reminder, we are a 20% owner of 120 West Trinity. While it is no guarantee of the eventual outcome, we work as current on rent payments at the other two locations. Based on the late status of rental payments at the two locations, we anticipate those two leases will be rejected in the event of a rework bankruptcy. The 725 Ponds lease is 46,000 square feet, and the 120 West Trinity lease is 33,000 square feet, of which our share is 6600 square feet.

Happens.

That's helpful and can you put some numbers around where you think spreads are today as he tried to base secured or unsecured debt.

Yeah, I mean, you know.

It changes, it's fluid, but I would say that you know I mean, you can see the REIT office REIT unsecured bonds trade. They trade every day not a lot of them, but they do trade. So you can see the spreads out there and I think that that offered.

Richard Hickson: Fortunately, we have meaningful letters of credit in place for both leases. We are confident that the high quality of those two underlying office properties would present us with a range of future alternatives for these phases. 725 Ponds is one of the most dynamic new office buildings in Atlanta is located directly on the belt line in East Midtown and is currently 100% Wheat. Given that, we expect to have an opportunity to either backfill with traditional office users, lease the spaces to a different flexible office operator, or even continue working with we work in an alternative structure.

Higher investment grade office unsecured bonds are trading in the kind of the high to the low three hundreds over the 10 year spread and then in terms of secured debt I think you'd probably 50 to 75 basis points tighter than that.

I appreciate the color and finally, what gives you comfort to underwrite redevelopment projects like Hayden ferry or potentially demand for when there is such high cost barriers and unknowns around where rents will ultimately pencil out.

Richard Hickson: Regarding SBB financial group, our former 205,000 square foot customer at Hayden Ferry 1 and Phoenix. Consistent with our prior guidance, SBB paid rent through September 30 and vacated the property. Hayden Ferry 1 has since been taken out of operation as part of a broader redevelopment of the entire Hayden Ferry project. As I have stated before, we believe this redevelopment will redefine the standard of quality and the tempi submarket and are excited about the opportunity to backfill Hayden Ferry 1, especially given SBB's average expiring rent was below market. It's early, but a number of interesting prospects of various sizes have already toured the space. We anticipate the construction component of this overall redevelopment project will wrap up by the end of 2024.

Camille it's it's Colin I think.

We've got a lot of confidence in Hayden ferry and a lot of history.

In Hayden ferry and we've also seen some very recent successes with our redevelopment projects certainly here in Atlanta at the promenade.

Executed similar similar redevelopment and solve the demand and the rate that customers, who are willing to pay for and a premier lifestyle type office properties, and then looking out specifically too campy.

Just executed a repositioning of our Tempe Gateway project, which is.

Secondly across the street from Hayden Ferry.

And again, where we're able to see the types of rents that we were able to achieve and are achieving at Tempe gateway and that gives us direct visibility into how we're underwriting.

Richard Hickson: Now for our operating results. Our total office portfolio weighted average occupancy and in the period lease percentage both increased 0.3% this quarter to 88% and 91.1% respectively. These represent our highest occupancy and lease percentage levels since the end of 2021.

The repositioning of Hayden ferry.

Thank you for taking my questions.

Thanks Camille.

Our next question will come from Vikram Malhotra with Mizuho. Please go ahead.

Richard Hickson: Despite national office leasing volume declining amid continued economic uncertainty, our team was able to deliver our highest quarterly leasing volume of 2023. In the third quarter we completed 32 office leases totaling 548,000 square feet with a weighted average lease term of 8.6 years. 20 of those leases were new and expansion leases and leases over 10,000 square feet represented over 80% of our total activity. Our higher volume this quarter included two important sizeable long term renewals.

Hi, this is GA on for Vikram.

What are you seeing on the sublet space and can you comment on any recent impacts from work from home dynamics and how this has changed over the last six months.

Sure good morning.

The sublease activity.

Across our markets in the Sunbelt I'd say.

Third quarter relative to the second quarter has had largely been flat.

Richard Hickson: One for 121,000 square feet at 3348 peach tree in Atlanta and another for 112,000 square feet at corporate center in Tampa. The latter was a somewhat early renewal with that customer previously due to expire in early 2025. With this quarter's leasing activity, we now only have 15.1 percent of our annual contractual rent expiring for the end of 2025, including only 5.6 percent in 2024. Further, no more than 10 percent of our annual contractual rent expires in any given calendar year through 2030. We're pleased with our lease expiration profile and the stability it should provide our operating portfolio. [inaudible] only about 2 percent below our last 4-quarter run rate.

We have not seen an increase in sublease availability.

I'd say in certain markets, we've actually seen it come down and that's been a combination of some of that sublease space.

I actually being leased and in some instances customers taking that space off the market as they rethink their plans.

As we look at the work from home trends that you mentioned.

Certainly a year ago that that was a major secular.

The risk that we were focused on here at cousins, along with the cyclical risks in the economy I would tell you as we sit here today, we are far less concerned about the secular risks of work from home and its impacts on trophy lifestyle office in the Sunbelt and that's.

We're certainly seeing that in the.

The headlines and as I mentioned the announcements that are that are accelerating and in many of those are now we had a fortune 500 company in Atlanta, just this week that had not been back to work and just announced three days a week. We've had a fortune 500 company here in Atlanta that was three days that just announced they were moving to four days.

And I think the consensus among many Ceos for again, the best that their employees and their professional employees and the highest quality buildings is going to trend up probably.

Richard Hickson: Lastly, second generation net rent growth improved this quarter, coming in at a strong 9.8 percent on a cash basis. We also saw cash net rent grow in every market this quarter. Again, these results are solid across the board.

Probably four days, a week and I hear that often.

And so we're I'd say far less concerned about that today.

Thank you and just a last quick one for me can you talk about the assets that you would like to sell and when do you see cap rates today and I guess over the next six to 12 months.

Richard Hickson: Now for a quick update on our leasing pipeline. Our late stage leasing pipeline, consisting of leases currently in negotiation, sits in line with last quarter and approximately 615,000 square feet. As a reminder, our late stage pipeline remains almost double what it was at the beginning of 2023. We also continue to be pleased with our medium and early stage pipelines, with overall tour activity up, again, relative to the prior quarter.

And again Theres really not.

Not a lot of data points on where cap rates are today I think we're still in that process.

Again of.

The market is moving and it's still fluid.

Investors are looking for direction and where interest rates are going before they are probably more willing to place bets and I think when that stability arrives.

Richard Hickson: As we look across the sun, though, we see first hand in our portfolio that the highest quality office buildings that provide occupants with a better lifestyle while at work continued to outperform. This is very evident in Atlanta. As JLL has noted, in Atlanta assets built since 2010 have absorbed 5.1 million square feet of space over the last three years, while assets built prior to 2010 saw over 12.2 million square feet of negative absorption.

We'll see investors begin to make bets and again I just kind of pivot back for a moment and kind of why do we think investors are going to have confidence to invest in trophy lifestyle office in the Sun belt, and and I think many of those investors are going to look at the experience of cousins properties over the course of.

This pandemic.

And if you Greg highlighted just a few minutes ago that from the start of the pandemic to now we've actually grown our.

Richard Hickson: In our Atlanta portfolio this quarter, we signed 257,000 square feet of leases, with over 80 percent of the activity in Midtown and Buckhead. Further, 49 percent of our leases signed in Atlanta this quarter were new in expansion leases. Our recently redeveloped promenade campus in Midtown continues to see strong activity, with over 219,000 square feet of leases signed their year to date. I'm also excited to report that this quarter we signed a 25,000 square foot expansion with Snowflake at Terminus 200 in Buckhead, and that we are also in lease negotiations for 57,000 square feet of new occupancy at 3350 peach tree in Buckhead. The latter is a nice validation for another one of our recently redeveloped properties.

Our net operating income by 15% and been able to do that while maintaining a fortress balance sheet and so it is showing the durability and the stability and future growth.

And in lifestyle office in the Sun belt, and so that that Investor capital will come back we think it will be firmly focused.

And the best assets in the best markets and I think until that time comes we're not in a huge hurry at cousins to pursue.

Dispositions, we've got a great balance sheet no need for near term liquidity and so while we're patient on the acquisitions at the moment. We're also patient on the dispositions.

Yes.

Richard Hickson: In Nashville, we remain encouraged by the office and retail interest in our new off mixed use development. While no new leases were signed this quarter, we have almost 60,000 square feet of leases in negotiation, of which 49,000 square feet is office. In addition, we continue to have a robust prospect list, with over 140,000 square feet of active proposals currently outstanding.

Great. Thank you so much for taking my questions.

Our next question will come from Anthony Powell with Barclays. Please go ahead.

Yeah.

Hi, Good morning, a question on tenant improvements.

We always hear stories about tech Ti growing and a lot of coastal markets.

Talked about.

Some space increasing doesn't seem to be the case in your market. So maybe you can talk about ti requirements in your markets in Alberta.

Richard Hickson: The momentum at this project continues, with exciting retail announcements on the horizon and the apartments set to open early next summer Finally, I want to reiterate there are Austin Portfolio is very well positioned to whether the near-term supply challenges coming into view in that market At the end of the third quarter, our Austin Portfolio was 94.6% weeks with relatively little availability to lease and no material near-term explorations and enjoying 5.9 years of weighted average lease term Our Austin team signed 45,000 square feet of lease at this quarter rolling up cash net rents 24.9% Before handing that off to Greg, I want to thank our Best in Class operations team for the great work they do every day Each of you play a truly critical role in our continued success, Greg Thanks, Richard.

All of the past few quarters.

Sure. This is Richard.

We do continue to see some amount of pressure and inflation in construction costs, but.

Certainly when we're looking at.

Tenant improvements and how they flow through to our results. Those are allowances that were giving they arent necessarily indicative of the total project cost. So it is truly a concession and a negotiation in any given deal when we felt like.

And you can see it in our results that we've been able to manage that and you just look at our net effective rents over time, where we've had more exposure to the increasing.

<unk>.

To get leases signed we've been able to to actually seek out higher rate to offset that successfully.

Gregg Adzema: Good morning, everyone. I'll begin my remarks by providing a brief overview of our results as well as some details on our same property performance Then I'll move on to our development pipeline, followed by a quick discussion of our balance sheet before closing my remarks with an update to our earning job look for the balance of 23 As column stated up front, our third quarter earnings were solid and the operating economics behind them remained very strong Second generation cash, cash, leasing spreads were positive for the 38th straight quarter that's over 9 years of uninterrupted rent growth Leasing the velocity accelerated in same property the year-rear cash and line increased It was also a very clean quarter.

Got it thanks, so maybe on a we work.

Have you entered.

You know talks with them about maybe restructure some of these leases than maybe exiting earlier.

Work on releasing the space or is this or an expansion really tobacco start.

Could you repeat the question Anthony.

Yes, I mean, we work.

Have you started to have discussions with them about potentially be working on leases or.

Early for that process to start.

This is Richard again, we are under a non disclosure agreement about about the proceedings and what's going on with we work, but but higher level. Yes. We are in dialogue, they're an important partner of ours have been for many years.

Gregg Adzema: The only item of note was a non-core land sale in Atlanta for $4.3 million that generated a gain of approximately half a million dollars Before discussing same property numbers, I wanted to take a moment to step back from this quarter's results and look at our performance since the onset of COVID Well, FFO has been flat. It was $0.64 per share in the second quarter of 2020, excluding Norfolk Southern fees, compared to $0.65 per share of this quarter Quarterly in ALI has actually steadily increased over this period of $18 million or 15% So why is it an FFO office well?

And as we've mentioned earlier, it's a very fluid situation. It is potentially a bankruptcy situation and a lot can happen, but we are we are speaking.

We are exploring a lot of different alternatives.

Okay. Thank you.

And our next question will come from Peter Abramowitz with Jefferies. Please go ahead.

Thank you.

It's a comment.

Hello.

I was wondering if you could talk about.

Other building your portfolio with significant.

Significant vacancy.

Can you talk about activity at North Park, as well 111 Congress.

Gregg Adzema: The answer is higher interest expense I point this out to highlight the underlying cash flow growth from our properties over the past three years We've driven cash flow through increased rents and the completion and lease-up of new developments and redevelopments As Colin pointed out earlier, trophy lifestyle office buildings in the Sunbelt continued to perform well, which is often lost in the negative headlines around the office industry in general Moving to our same property performance, cash and ALI increased 4.6% during the third quarter compared to last year Cash revenues increased 60 basis points while expenses decreased 6% driven by lower property taxes In addition to our recurring appeals of tax assessments, our portfolio also benefited this quarter from the well-publicized tax cuts in Texas that are expected to be approved by voters next month and reflected in 2023 tax bills The majority of our savings was recognized in Austin Foundation, which is largely a triple net market and, therefore, a lower property taxes, reduced both our revenues and our expenses during the quarter. Turning to our development efforts, the current development pipeline is comprised of a 50% interest in New Hof in Nashville and a 100% of Delmaid 9 in Austin.

They could be there.

I would be interested in those spaces.

Any potential contribution for 2004.

Yes, good morning.

It's Colin I would say looking at those two properties North Park has been a bit more of a challenge for US is a more suburban property in the central perimeter here in Atlanta.

And that market has been slower to recover its leasing velocity than some of our more urban markets North park over the long term has some great things going for it it sits in a REIT on Georgia.

Okay.

Okay.

Okay.

Pardon me speakers as your line open.

Yeah.

Pardon me, ladies and gentlemen, it appears we have lost connection.

Yeah.

Now we can hear the operator.

Gregg Adzema: Our share of the remaining development costs is $90 million, $15.55 of which will be funded by our New Hof construction loan, leaving only 35 million to be funded by our operating cash flow. Before moving to our balance sheet, I wanted to take a moment to point out a change we made to the development pipeline report on page 25 in our earning supplement. Specifically, we've adjusted the definition of stabilization dates to reflect the actual estimated stabilization for each development project.

Jessica.

Speakers are reconnected please continue.

You missed the punch line.

Sorry for the technical difficulty there I was just mentioning that net north park has been a bit more challenging that the central perimeter has been a little slower to recover and as leasing activity, but north park as it does have some positives with a modest stock directly on campus.

Gregg Adzema: Previously, the stabilization dates reflected the earlier of one year after completion or estimated stabilization. This is a gap concept that dictates capitalization policy. In practice, it proved to be confusing for many investors since the one year deadline typically came before actual stabilization. Hopefully, this new disclosure is helpful. To be clear, we've not changed the estimated stabilization dates on our development and progress. We have simply improved the disclosure around these dates. Looking at our balance sheet, net debt to EBITDA is an industry leading five times.

What 11 Congress in Austin.

And again, our urban markets have seen more activity.

111 is a great property that many four or five years ago, a significant redevelopment was done with a with a major food hall on campus and that that's a property that we believe.

When we find the right customer, we'll hopefully be able to drive some some occupancy there.

Sooner than later.

I think likely ahead of North Park.

Got it Thats helpful.

Gregg Adzema: Our liquidity position remains strong with only $144.5 million outstanding on our $1 billion unsecured credit facility. And our debt maturity schedule is well-lattered with no remaining maturities in 2023. Looking at 24 and beyond, our debt maturity schedule has three pieces of debt with extension options. First, we have a $350 million term loan with an initial maturity in August of 24 that is four or six month extensions. Second, we have a $400 million term loan with an initial maturity of March 25.

And then just a higher level question a lot of your peers this quarter have talked about.

Just slower decision making from tenants.

And generally longer deal cycles.

Just wanted to see if you had any color on whether.

Whether you had a similar experience if you are seeing that in the portfolio or if that hasnt really been the case for you.

Gregg Adzema: It has four month extensions as well, four or six month extensions as well. And third, our new off construction loan has an initial maturity of September of 2025 and has a single one-year extension option. When taking these three extensions into account, our next significant debt maturity is not until July of 25. Our debt maturity schedule is laid out including all extension options on page 28 of our financial settlement.

So we've got some competing forces at play and I think you know.

Higher interest rates are kind of at the center of all of those competing forces and I'd say I characterize is on the negative that in some instances higher interest rates are.

You're forcing companies to become more efficient and therefore, they are scrutinizing head count G&A and in real estate spend it very very carefully at the same time.

We always say here at cousins as the fed raises interest rates. They are also driving employees back to work.

Gregg Adzema: I'll close by updating our 23 earnings guidance. We currently anticipate full-year 23 FFO between $2.60 and $2.64 per share with a midpoint of $2.62 per share. This is up from our previous midpoint of $2.61 and represents the third quarter in a row that we've increased the midpoint of our FFO guidance. No property acquisitions, property dispositions, or development starts are included in this guidance. The increase is primarily driven by two items. First, as I outlined earlier in the call, we have reduced our property tax assumptions for the year.

And I think we're seeing some instances and theres. Some active deals that Richard has alluded to that are directly.

Tied to as companies focus on the bottom line and profits they want their people back in greater force and in some instances are realizing they don't have enough space and so we are seeing a push and a pull there and and our belief is regardless that with the quality of our portfolio and our.

Ability to fund leasing costs that were going to work really hard to.

Gain as much of that market share as we can.

Gregg Adzema: Second, we've included the gain on land recorded during the third quarter in our annual numbers. Guidance does not include any impact from our four we workplaces. As Richard outlined earlier, we have assumed two leases will be rejected in a potential banker. LLC, and two leases will survive. The letters of credit for the two rejected leases that cover all balance sheet exposure and lost revenue for the remainder of the year. As with any potential bankruptcy, things are fluid, and they can change quickly.

Got it that's all for me. Thank you. Thank you.

And our next question will come from Dylan Brzezinski with Green Street. Please go ahead.

Okay.

Good morning, guys and thanks for taking the question.

Apologies if I missed it as I joined late but just curious given the strong leasing activity year to date and minimal lease expirations next year would you guys say, it's fair to say that occupancy at the portfolio level has maybe bottomed here.

Gregg Adzema: If our assumptions concerning we work materially change, we will provide a timely update. Guidance also does not include any payment of our unsecured claim in the SBB bankruptcy case, which we currently estimate to be approximately $10 million. The exact amount and timing of recovery gets this claim does not yet know, but unsecured SBB bonds are currently trading between $55 and $0.60 in the dollar, so we do anticipate there will eventually be significant value in this claim. Bottom line are third quarter results for solid, our strong leverage and liquidity position remains intact, and we are raising ethical guidance.

We hope so.

And as again as you mentioned we have.

In modest expirations next year kind of net no significant other than acrylic.

Large known move out so again, we'll have to.

Monitor the evolving situation with with we work, but we work aside our hope is certainly I would say our goal as a company is certainly to end 2024.

Occupancy higher than it is at the end of 2023, and there could be some modest fluctuations positive or negative quarter to quarter, but that certainly is a goal.

Unknown Executive: 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 than one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw a question, please press star than two.

And then I guess, just one on sort of inbound activity from out of market tenants have you guys seen that sort of a slowdown here more recently relative to the level that we saw coming into the pandemic.

Yeah, well I would say its reverting back to where it was prior to the pandemic and and again. This has been a trend that's been underway for 10 to 20 years.

Blaine Heck: At this time, we will take our first question, which will come from Blaine Heck with Wells Fargo. Please go ahead. Great. Thanks. Good morning.

Richard Hickson: Richard, your detail on each of the markets is very helpful, but I guess just taking a step back, can you talk a little bit more generally about which markets in your portfolio you'd say are showing kind of the most ability from an occupancy and rent standpoint, and which might be weaker or weakening, and maybe some of the reasons for the relative strength or weakness? Sure. Good morning. So I think my answer is very similar to what we talked about last quarter.

And it's been up into the right and I think.

For all the obvious reasons that we know it was certainly supercharged.

During the pandemic and I think we'll see that likely to revert back to the mean I think in the immediate near term I'd say the biggest challenge to some of the relocations is just the higher cost of residential mortgages.

And so I think kind of the full scale relocations of the company.

Richard Hickson: I think all of our markets have some positive dynamics in play, but there are competing dynamics as well with rising interest rates and then people returning to work. So a lot of undercurrents. But I continue to point out that Atlanta has been very healthy and strong for all of 2023. We executed a lot of weecing volume for its size and Tampa, and I continue to feel like Tampa is displaying as much as any market, the bifurcation between quality and kind of everything else.

That might might slow until that normalizes, but what we are seeing a lot of companies do is rather than relocate employees. They are moving are shifting their growth to the sunbelt and hiring within markets.

Which mitigates that so I'd say I think you're likely to see continued activity on expanding hubs.

And perhaps more kind of near term more near term slowdown in full scale relocations.

Great. Thanks, guys.

Richard Hickson: So the flight quality dynamic there is very much in play, but I'd say the same thing for Phoenix as well. We've had really encouraging tour activity there and conversion to weecing activity. So I have positive things to say about every market. Austin, obviously we've called out in the past and continue to flag the fact that there are supply challenges, and our volume has not been as strong there this year. But at the same time, we don't have a lot of vacancy available to lease. We're in a very good position with a lot of stability, so we can weather the kind of cyclical dynamics there very well. Great. That's really helpful.

Thanks Dylan.

And our next question will come from John Kim with BMO. Please go ahead.

Thank you.

We work is there anything you could share on the characteristics, whether it's occupancy or profitability between the two locations that they remained current on rent versus non current.

Okay.

Unfortunately, we are under an NDA. So we can't share specifics about the performance of each location at this time.

Okay.

Wondering like what gives you confidence.

The two remaining current leases well.

We will continue to pare back on that.

Colin Connolly: And then Colin, you know, I understand there are very few transactions to point to in the investment sales market.

Okay.

Again, I think that that will be fluid, but I think look.

Colin Connolly: But can you talk about how your internal return hurdles on new investments have changed with the increase in capital costs, and whether or not, you know, there are any interesting opportunities that might be emerging on the acquisition side of things. Well, I've definitely say our return expectations have gone up. I think it's still too early to precisely define our specific kind of caprate or unlevered IRR because the market continues to be so fluid.

Looking to what we work is doing is certainly kind of our guide.

At the moment and we're able to write we owned the properties. We see he is kind of coming and going and we see a lot of if we see activity physical activity and spaces.

But again, our current guide is based on.

We've made a decision to pay rent on two and made a decision to not pay rent on the other two.

Got it okay.

On NCR I know last quarter you provided.

An update on the leaf and the company stopped leasing some of that space. I was wondering if you could provide a further update to that and if there's any chance that they give that some of that space back to you.

Colin Connolly: And I think until there's some stability, putting aside the actual nominal kind of interest rate, until there's some stability in terms of the direction of rates, I think that will continue to be fluid. But we are starting to see an uptick and in opportunities that we are tracking. I think in many cases, it's still a bit early to insert ourselves in those opportunities because there are, you know, I'd say capital structure dynamics that are still playing out between, in many cases, owner and lenders or mezz lenders, but we are tracking a number of situations that are going to require outside capital. And I think it could be interesting opportunities, but we need to be patient and wait for the right time.

So the the NCR did did complete their.

Blaine Heck: Great. That's helpful. Thanks, Beth. Thanks, Elaine.

Corporate spin off to today it is too.

There are two separately traded public companies our lease our master leases still with our original lessor one of those two public companies and as you mentioned they have put.

Some of the space on the sublease market is they've split into two companies and are attempting to be come more.

More efficient.

But there is no ultimate change in our lease and they have no rights to give any space back. They certainly have the right to sublease space.

And I think it's a potential that will engage with them in the in some of those conversations if an interesting opportunity.

Comes along for our shareholders to go direct.

Jay Poskitt: Our next question will come from Jay Poskitt with Evercore ISI. Please go ahead. Hi, good morning. Thanks for taking my question. I was wondering if you could break down the leasing pipeline just between new and renewals and kind of how that just breakdown has changed over the past couple of quarters. Sure. Well, this quarter, we executed 35% of our activity was new in expansion. If you look to the weight stage, we seen pipeline that's new in expansion will kind of pop up back to levels we've seen prior to this quarter, so kind of a little over 50%.

With with a new long term.

Tenant customer and some of that space.

I think they already have some actually some meaningful prospects for that for that space and so it will continue to stay in touch with them and if there is a win win solution.

For them and our shareholders, we will certainly engage.

Final question for Greg.

On the improve.

Improved disclosure on this table.

Jason periods on developments can you just remind us.

On your capitalized interest policy, if you're required to expense the interest one one year after completion or are there. Some ways that you can extend that capitalized interest period.

Jay Poskitt: And Jay, it's kind of that those numbers will fluctuate quarter to quarter and really what drives that is going to be kind of the expiration schedule. And based on that expiration schedule, that's really going to drive what our renewal activity looks like. And so it will fluctuate quarter to quarter.

No.

That's a drop dead date, we typically capitalized interest on unoccupied space.

No greater than one year after completion.

Got it okay. Thank you.

Thank you John.

Richard Hickson: Great. Thank you. And then I know that the sorry expiration in 24 are relatively muted, but do you have any large known move outs as we look ahead to next year? Yeah, it's in next year we have a low percentage of expiration and we also have very few large expiration. And so looking forward to next year, we really just have one customer within the portfolio that's over 100,000 square feet and that would be a cruant at domain four.

This concludes our question and answer session I would like to turn the conference back over to Colin Connolly for any closing remarks.

Thanks for your time this morning, and your interest in cousins properties, we will look forward to hopefully seeing many of you out in NAREIT in a few weeks have a great weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Richard Hickson: We talked about that in past quarters. Our expectation there is that they're likely to significantly downsize or leave. And again, it's a little over 100,000 square feet in August of 24. But just to point out, and I think many of you all have toured domain four, that's one of the original vintage single story buildings in the domain that sits directly on rock roads, the main retail and entertainment avenue within the domain.

Richard Hickson: And it's arguably the best land site that we have in the domain. And so it ultimately might be more suitable to us as land than trying to aggressively renew that space, at least for the long term. Perhaps a short term lease would be in the cards, but it's a terrific land site for us. Outside of that, the only other and say significant expiration that we have next year is NASCAR Media, which is about 77,000 square feet that expires in the end of February next year.

Richard Hickson: Again, we've talked about this many times in past quarters. NASCAR did a long term renewal for some space at our 550 South Project. This 77,000 is going to be relocated into a new facility that they're building at the race track. And so this was originally scheduled to expire this year. They extended it in the next year to line that up with the delivery of their new media center. And so there's a really it for next year.

Jay Poskitt: Great, thanks, that's all for me. Yeah.

Upal Rana: Our next question will come from Upal Rana with key bank. Please go ahead. All right, thank you for a quick question. So you highlight the real estate tax savings and prepare remarks. Can you maybe break that down by maybe market where you're seeing that and maybe any potential other cost reduction plans that you're working on that can help support cash flow either this year or next year? Sure. Upal Rana is great.

Upal Rana: The vast majority of our property tax savings this quarter were in Texas and the vast majority of what we own in Texas is in Austin. So the savings were primarily in Austin. It hasn't been approved yet but it will be overwhelmingly approved by voters here in a couple weeks. You know, once that happens, it kind of resets the bar. And so, you know, as we do with any accrual, we we caught up three quarters the first nine months of the year, this quarter.

Upal Rana: So you saw kind of nine months of an accrual adjustment pushed into three month reporting period. In the fourth quarter it'll just be a one month reporting period. So we'll still will still enjoy some savings but it won't be quite as large as it was this quarter. And then we reset the bar in Texas going forward. So it's a favorable kind of outcome that has legs moving forward for us. We haven't seen anything large like that in any of our other markets.

Upal Rana: No statewide or market wide adjustment to kind of the property milled rate or property tax policy in general. But, you know, you take a step back and we all realize what's happening to office values here. So we should be successful just in general, you know, on appeals of property tax assessments going forward. So, you know, there are certainly some headwinds on the expense side for office owners, just general inflation as well as people returning to the office.

Upal Rana: But on the property tax side, you know, I don't think we're going to have those same headwinds. Okay, great. Thank you. So for my next question, you kind of highlight all your strong balance sheet and your strong liquidity. Are you still going to focus on liquidity or do you think that maybe you can start putting some of that to work maybe in buybacks or or some other other places? Yeah, it's great.

Upal Rana: Again, as Colin talked about just a few minutes ago, we value our liquidity at the moment. We've always maintained liquidity. And these are the periods of the cycle where it has tremendous value. And so we're going to be patients and discipline before we deploy it. There will be opportunities to deploy it. But we're going to be very thoughtful and treated as a competitive advantage because it is wonderful. And so, you know, we'll look at each opportunity as they arrive. Things are starting to come kind of come over the threshold. The pace is increasing slightly. And we're optimistic, you know, going forward that we'll have a chance to do something with that liquidity. Great. Thank you.

Upal Rana: That was helpful.

Camille Bonnel: Our next question will come from Camille Bonnell with Bank of America. Please go ahead.

Camille Bonnel: Hello. You follow up questions on the balance sheet. First, more generally in today's market, where do you see the most attractive places to raise capital? Camille, it depends on what type of capital we're talking about, but you know, at the moment equity capital is obviously price that levels that us and other office streets would find, you know, not useful. So I don't think you're talking about raising equity at the moment. On the debt side, you know, what is emerged is, you know, if you have the right assets, you can obtain mortgages on those assets.

Camille Bonnel: The LTVs are lower, the spreads are higher, and they have historically been, but there's debt available for the right office buildings, and that's probably the most cost-effective debt available at the moment. On secured debt where there's a private placement execution or an investment grade bond execution would typically be more expensive. And you've seen, there hasn't been much liquidity, but you've seen some liquidity on both of those fronts, so you can generally kind of see the pricing on that.

Camille Bonnel: In terms of, you know, kind of alternate sources of equity might be a joint venture or something like that, I think that also has become more difficult than it has been historically. And there's limited liquidity out there. The typical joint venture partners are, I think, taking a step back from the office market moment, and they're trying to figure out, you know, where pricing will actually occur. I'm a little liquidity returns. I don't think they're going to be at the forefront of it. I think they're going to be watching what happens.

Colin Connolly: That's helpful. And can you put some numbers around where you think spreads are today, if you try to raise secured or unsecured debt? Yeah, I mean, you know, it changes, it's fluid, but I would say that, you know, and you can see the re-office re-unsecured bonds trade, they trade every day. Not a lot of them, but they do trade. So you can see, you know, the spreads out there. You know, and I think that the office, the higher investment grade office unsecured bonds are trading in the kind of the high two to low 300s over the 10 year spread. And then in terms of secured debt, I think you're probably 50 to 75 basis points tighter than that.

Colin Connolly: Appreciate the color.

Colin Connolly: And finally, what gives you comfort to underwrite redevelopment projects like Hayden, Terry, or potentially the main four when there are such high cost barriers and unknowns around where rents will ultimately pencil out at? Camille, it's Colin. I think we've got a lot of confidence in Hayden Ferry and a lot of history in Hayden Ferry, and we've also seen some very recent successes with our redevelopment projects. Certainly, you know, here in Atlanta, at the promenades, you know, executed similar, similar redevelopment and solve the demand and the rate that customers were willing to pay for a premier lifestyle type office properties.

Colin Connolly: And then looking out specifically to Kempi, we just executed a repositioning of our Kempi Gateway project, which is effectively across the street from Hayden Ferry. And again, we're able to see the types of rents that we were able to achieve in our achieving a Kempi Gateway. And that gives us direct visibility into how we're underwriting the repositioning of Hayden Ferry.

Colin Connolly: Thank you for taking my questions. Thanks, Camille.

Vikram Malhotra: Our next question will come from Vikram Malhotra with Mizzoulo. Please go ahead. Hi, this is Georgie on for Vikram.

Richard Hickson: What are you seeing on the sublet space and can you comment on any recent impacts from work from home dynamics and how this has changed over the last six months? Sure, good morning. I would say the sublet activity across our markets in the Sunbelt, I would say third quarter relative to the second quarter have largely been flat. We have not seen an increase in the sublet availability. I would say in certain markets we have actually seen it come down. That has been a combination of some of that sublet space actually being leased and in some instances customers taking that space off the market as they rethink their plans.

Richard Hickson: As we look at the work from home trends that you mentioned, certainly a year ago that was a major secular risk that we were focused on here at Cousins along with the cyclical risks in the economy. I would tell you as we sit here today we are far less concerned about the secular risks of work from home and its impacts on trophy lifestyle office in the Sunbelt. We're certainly seeing that in the headlines and as I mentioned the announcements that are accelerating and many of those are we had a Fortune 500 company in Atlanta just this week that had not been back to work and just announced three days a week.

Richard Hickson: We've had a Fortune 500 company here in Atlanta that was three days that just announced they were moving to four days and I think the consensus among many CEOs for again the best their employees and their professional employees in the highest quality buildings is going to trend probably four days a week and I hear that often and so we're at say far less concerned about that today.

Richard Hickson: Thank you and just a last quick one for me can you talk about assets that you would like to sell and what do you think operates today and I guess over the next six to twelve months. Again there's really not you know not not a lot of data points on on where it operates are today I think we're still in that process again of you know the market is moving and it's still fluid investors are looking for direction and where interest rates are going before they're probably more willing to place bets and I think when that stability arrives you will see investors begin to make bets and you know again I just kind of pivot back for a moment and kind of why do we think investors are going to have confidence to invest in trophy lifestyle office in the Sunbelt and I think many of those investors are going to look at the experience of cousins properties over the course of this pandemic and you know if you if you Greg highlighted just a few minutes ago that from the start of the pandemic to now you know we've actually grown our net operating income by 15% and been able to do that while maintaining a fortress balance sheet and so it is showing the durability and the stability and the future growth in in in lifestyle office in the Sunbelt and so that that investor capital will come back we think it will be firmly focused in the best assets and the best markets and I think until that time comes we're we're not in a huge hurry at cousins to pursue dispositions we've got a great balance sheet no need for near-term liquidity and so while we're patient on the acquisitions at the moment we're also patient on Great. Thank you so much for taking my questions.

Anthony Paolone: Our next question will come from Anthony Paolone with Bar Place. Please go ahead.

Richard Hickson: Hi, good morning. Question on tenant improvements, you know, we always hear stories about TI growing and a lot of coastal markets in this meat cost of some space increasing, done seem to be in case in your market. So maybe you can talk about TI requirements in your markets and how those have evolved the past few quarters. Sure, this is Richard. I mean, we do continue to see some amount of pressure and inflation and construction costs, but certainly when we're looking at tenant improvements and how they flow through to our results, those are allowances that we're giving they aren't necessarily indicative of the total project costs.

Richard Hickson: So if it is truly a concession and a negotiation and any given deal and we felt like and you can see in our results that we've been able to manage that and you just look at our effective rents over time where we've had more exposure to the increasing TI's to get Lisa's signed, we've been able to to actually seek out higher rate to offset that successfully. Kind of thanks to baby on the rework.

Richard Hickson: Have you entered the pulse for them about maybe the restructuring some of these Lisa's and maybe them exiting earlier so we can work on releasing the space or this kind of early for that to start. Could you repeat the question, Anthony? Yes, on a rework. Have you started to have discussions with them about potentially reworking releases or is it too early for that process to start? This is Richard again. We are under a non-disclosure agreement about about the proceedings and what's going on with we work, but but higher level, yes, we are in dialogue there, an important partner of ours, have been for many years and as we've mentioned earlier, it's a very fluid situation. It is potentially a bankruptcy situation and a lot can happen, but we are speaking and exploring a lot of different alternatives.

Anthony Paolone: Okay, thank you.

Peter Abramowitz: And our next question will come from Peter Abramowitz with Jeffries. Please go ahead. Thank you. I appreciate the comments and the color on 32, 53. Just wondering if you could talk about the other building in your portfolio with significant banking fees. Could you talk about activity at North Park as well as 111 Congress? Yes, the more they could be there. Just how the interest in those spaces and any potential contribution for 24?

Colin Connolly: Yeah, good morning. It's Colin. I would say looking at those two properties, North Park has been a bit more of a challenge for us. It is a more suburban property in the central perimeter here in Atlanta and that market has been slower to recover. It's leasing velocity than some of our more urban markets. North Park over the long term has some great things going for it. It sits right on Pardon me, speakers, is your line open?

Colin Connolly: Pardon me, Zee, appears with a blast connection. And we can hear the operator. Speakers are reconnected. Please continue. You missed the punch line, everyone. Sorry for the technical difficulty there. I was just mentioning that North Park has been a bit more challenging that the central perimeter has been a little slower to recover in its leasing activity. But North Park does have some positives with a amount of stop directly on campus. What 11 Congress in Austin, again, urban markets have seen more activity.

Colin Connolly: 111 is a great property that many, gosh, four or five years ago, a significant redevelopment was done with a major food hall on campus. And that's a property that we believe when we find the right customer will hopefully be able to drive some occupancy there sooner than later. And I think likely ahead of North Park. Got it. That's helpful.

Colin Connolly: And then just a higher level question. A lot of your peers this quarter talked about just slower decision making from tenants and generally longer field cycles. Just wanted to see if you had any color on whether you've had a similar experience if you're seeing that in the portfolio or if that hasn't really been the case for you. So we've got some competing forces at play. And I think, you know, higher interest rates are kind of at the center of all of those competing forces.

Colin Connolly: And, you know, I'd say I characterize those on the negative that in some instances higher interest rates are enforcing companies to become more efficient. And therefore they are scrutinizing headcount, GNA and real estate spend very, very carefully. At the same time, you know, we always say here cousins is the fed raises interest rates. They're also driving employees back to work. And I think we're seeing some instances and there's some active deals that Richard has alluded to that are directly tied to as companies focus on the bottom line and profits.

Colin Connolly: They want their people back in greater force. And in some instances are realizing they don't have enough space. And so we are seeing a push and a pull there. And our belief is regardless that with the quality of our portfolio and our ability to fund leasing costs that we're going to work really hard to gain as much of that market share as we can. Got it.

Dylan Persinski: That's all from me. Thank you.

Dylan Persinski: And our next question will come from Dylan Persinski with Green Street. Please go ahead. Morning guys and thanks for taking the question.

Colin Connolly: Apologies if I missed it as I joined way, but just curious, given the strong leasing activity year to date and minimal lease expiration next year, would you guys say it's fair to say that occupancy at the portfolio level has maybe bottom tier? We hope so. And is again, as you mentioned, we have, you know, modest expiration next year, kind of no significant other than accruant, you know, large known move out. So again, we'll have to monitor the evolving situation with with we work, but we work aside, you know, our hope is certainly, I'd say our goal as a company is certainly to end 2020 for occupancy higher than it is at the end of 2023. And there could be some modest fluctuations positive and negative quarter to quarter, but that certainly is a goal.

Colin Connolly: And then I guess just just one on sort of inbound activity from out of market tenants. Have you guys seen that sort of slow down here more recently relative to the level that we saw coming into the pandemic? Well, I would say it's reverting back to where it was prior to the pandemic. And again, this has been a trend that's been underway for 10 to 20 years. And it's been up into the right, I think, for all the obvious reasons that we know it was certainly supercharged during the pandemic.

Colin Connolly: And I think we'll see that likely to revert back to the mean. I think in the immediate near term, I'd say the biggest challenge to some of the relocations is just the higher cost of residential mortgages. And so I think kind of the full scale relocations of the company might might slow until that normalizes, but what we are seeing a lot of companies do is rather than relocate employees. They are moving or shifting their growth to the Sun Belt and hiring within markets, which mitigates that. So I'd say I think you're likely to see continued activity on expanding hubs and perhaps more kind of near term, a more near term slow down in full scale relocations.

Colin Connolly: Great. Thanks, guys. Thanks, Dylan.

John Kim: And our next question will come from John Kim with the M.O. Please go ahead. Thank you.

Richard Hickson: On we work, is there anything you could share on the characteristics, whether it's occupancy or profitability between the two locations that they remain current on rent versus noncurrent. Yeah, unfortunately, we are under an MBA so we can't share specifics about the performance of each location this time. Okay, I'm just wondering what gives you confidence that the two remaining current leases will will continue to pay rent. Again, I think that that will be fluid, but I think looking to what we work as doing is certainly kind of our guide at the moment, and we're able to, we own the properties we see who's kind of coming and going, and we see activity, physical activity in spaces, but again, our current guide is based on, they've made a decision to pay rent on two and made a decision to not pay rent on the other two.

Richard Hickson: On NCR, in the last quarter, you provided an update on the lease and the company stop leasing some of that space. I was wondering if you could provide further update to that, and if there's any chance we could give that some of that space back to you. So the NCR did complete their corporate spin-off, so today it is to, there are two separately traded public companies. Our lease, our master lease is still with our original lesser or one of those two public companies.

Richard Hickson: As you mentioned, they have put some of the space on the sub lease market as they've split into two companies and are attempting to become more efficient, but there is no ultimate change in our lease, and they have no rights to give any space back. They certainly have the right to sub lease space, and I think it's a potential that will engage with them in some of those conversations, if an interesting opportunity comes along for our shareholders to go direct with a new long-term tenet customer in some of that space.

Richard Hickson: And they, I think they already have some actually some meaningful prospects for that space, and so we'll continue to stay in touch with them, and if there's a win-win solution for them and our shareholders, we'll certainly engage.

Gregg Adzema: Find a question for Greg. On the improved disclosure on the stabilization periods and developments, can you just remind us on your capitalized interest policy if you're required to expense the interest one year after completion, or are there some ways that you could extend that capitalized interest period? No, we did that. It's a drop did that we typically capitalized interest on unoccupied space, and no greater than one year after completion. Got it. Okay, thank you. Thank you, John.

Unknown Executive: This concludes our question and answer session.

Colin Connolly: I'd like to turn the conference back over to Colin, Colin Connolly for any closing remarks. Thanks for your time this morning, and your interest in cousin's properties. We will look forward to hopefully seeing many of you out in May, in a few weeks.

Unknown Executive: Have a great weekend.

Unknown Executive: The conference is now concluded. Thank you for attending today's presentation.

Unknown Executive: You may now disconnect your line.