Q2 2024 Cousins Properties Inc Earnings Call
Good morning, ladies and gentlemen, and welcome.
Since properties second quarter conference call.
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I'd now like to turn the conference over to Pamela Cole General Counsel. Please go ahead.
Thank you good morning, and welcome to cousins properties second quarter earnings Conference call with me today are Colin Connolly, our President and Chief Executive Officer, Richard Hickson, Our executive Vice President of Operation Kennedy Hicks, Our executive Vice President and Chief Investment Officer, and Greg and his team at our Chief Financial Officer The press.
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 requirement.
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 uncertainties and other factors.
You said working on annual report on Form 10-K, and our other SEC filings.
The company does not undertake any duty to update any forward looking statements, whether as a result of new information future events or otherwise a full declaration regarding forward looking statements is available in the supplemental package posted yesterday and it.
A detailed discussion.
As contained in our filings with the SEC with that I'll turn the call over to Colin Connolly.
You Pam and good morning, everyone.
It doesn't second quarter results were strong.
To summarize we delivered 68 cents a share an epic, though which compares favorably to street consensus.
We reported same property net operating income growth of 5%.
We leased 391000 square feet with a positive cash rent roll up at 18, 2%.
Our percentage leased and occupied both increased.
We reduced leverage with our net debt to EBITDA is 5.12 times at quarter end.
And we acquired two newly created mezzanine loans, which are secured by interests in lifestyle office properties in Nashville and Charlotte.
It doesn't the initial commitment is $27 2 million with a potential total commitment of $37 million.
These achievements are fantastic and continue to highlight the strength and resiliency of our leading sunbelt lifestyle office portfolio and our best in class balance sheet.
Before discussing our priorities at cousins I will start with a few observations on the market.
While the commodity office sector continues to struggle fundamentals.
Fundamentals for our lifestyle office in the Sun belt have begun to improve.
Physical utilization continues to grow.
Leasing activity has meaningfully accelerated.
Speaker Change: Sublease availability has come down.
And at the same time existing inventory is shrinking and new construction starts are at historical lows.
In simple terms demand is increasing while supply is decreasing.
This will lead to a rebalanced market. It is economics 101, the process that is underway.
Shortage of lifestyle office in certain markets, it's not that far off.
The flight to quality and the flight to capital continued to differentiate the market and cousins is well positioned at the intersection of these trends.
We own the premier lifestyle office properties in leading markets across the sunbelt.
In fact bank of America recently ranked our portfolio is the highest quality across their entire office coverage universe.
In addition.
Our balance sheet is undoubtedly best in class with the lowest leverage across the sector and a solid investment grade rating.
With these powerful tailwind our team remain strategically focused on driving earnings growth, while enhancing our geographic diversification and maintaining our strong balance sheet.
To do so we are prioritizing both internal and external growth opportunities.
Our portfolio is 88, 5% occupied today.
From 87, 6% at the start of the year.
Given the quality of our real estate and the strength of the balance sheet, we intend to grow our leasing market share and drive occupancy back to more stabilized levels.
Richard: Bank of America's exploration in Charlotte next year is a modest speed bumps in that process, Richard Richard will touch more on this however over the immediate term there is meaningful upside in our existing portfolio as leasing accelerates in our trophy lifestyle portfolio.
Externally.
We are beginning to see compelling investment opportunities.
As I mentioned earlier, we have recently closed on two mezzanine loan purchases with highly attractive risk adjusted returns Kennedy Hicks, our chief investment officer will provide more specifics.
At this point in the cycle, we are open to a wide variety of opportunities, including debt structured transactions joint ventures and property acquisitions.
However, our core strategy remains the same.
Invest in properties that already are or can be positioned into lifestyle office in our target sunbelt markets.
Near term accretion is also a priority.
Richard: Overall, the property capital markets remained challenging.
Asset level debt and equity for office remains limited and expensive.
Many private equity investors have legacy issues in their existing portfolios and remain on the sidelines.
Conversely, the public markets showed signs of improvement.
Liquidity has grown in the unsecured debt market and spreads have stabilized.
Office REIT share prices have begun to rebound.
This creates a compelling investment environment for cousins.
While some economic headwinds exist, we are encouraged by the improving fundamentals and the lifestyle office sector.
We built cousins to thrive during all economic cycles and today, we are in a highly advantageous position.
We are in growing sunbelt markets, we own the highest quality lifestyle portfolio and we have a fortress balance sheet with the lowest leverage among office Reits and great access to capital.
I'm excited about the opportunities ahead.
Before turning the call over to Richard I want to thank our entire cousins team our employees and teammates provide excellent customer service and hard work each and every day.
Your dedication talent and resilience continue to propel the propel the company forward and I. Thank you Richard.
Thanks, Colin good morning, everyone.
Our operations team closed out in the first half of the year with another great quarter.
Before going over our results I want to close the loop on we work.
All of our we work restructuring was completed prior to the end of the second quarter and our outcomes in each of the four locations were materially in line with expectations.
The only notable difference is that we work remained in occupancy at 725 parts longer than expected.
We're glad to have this effort behind us and look forward to our continued partnership with we work at our three remaining locations in Atlanta and Charlotte.
Now on to operating results in.
In the second quarter, our total office portfolio end up period waste and weighted average occupancy percentages were 91.2, and 88, 5% respectively. Both an increase over last quarter.
Occupancy was higher than our expectations this quarter largely due to we worked away and vacating seven twenty-five parts.
I also want to walk you through some drivers of our anticipated occupancy for the balance of this year.
Call that as of last quarter, our largest remaining 2024 exploration was accruing.
At 104000 square foot customer domain for an Austin expiring at the end of August.
We disclosed last year that accrue it wasn't expected to move out.
Richard: However, this quarter, we reached an agreement to relocate and renew accrued accrue it in our adjacent the main three building where they've reduced footprint.
The crew it will remain in its current space beyond its previous August exploration at a reduced rate until the relocation space is ready.
This is clearly a win relative to our expectations, but domain four will still be effectively 42% occupied after August.
As we've said in the past the main four as a single story former light manufacturing building, where we intend to limit we seem to short term as those deals to preserve optionality for future development on this exceptional land in the core of the domain.
Given this strategy, we plan to remove the building from our operating portfolio after accruing effective exploration in August.
The combination of this portfolio change our continued extremely low remaining 2024 lease explorations and about 480000 square feet of signed new and expansion leases set to commence through year end should result in stable and possibly modestly higher reported occupancy by year end.
During the second quarter, our team completed a solid 40 office leases totaling 391000 square feet with a weighted average lease term of eight six years further 240000 square feet of our completed leases this quarter were new and expansion leases representing a favorable 61.
1% of our activity on a square foot basis.
With regard to lease economics second generation cash rents increased yet again in the second quarter by a notably strong 18, 2%.
All of our markets with second generation activities saw roll ups in rent and Atlanta was the largest contributor.
Particular, we had a significant roll up in rent on the renewal of a major customer at promenade tower in Midtown.
We use was one of the first new leases signed after we purchased the property in 2011 and the rent roll up this quarter is a testament to the strong rate growth, we have seen in Midtown Atlanta lifestyle office.
Our average net rent this quarter came in at $37.64, an increase over last quarter and the third highest quarterly level in our company's history.
This quarter average leasing concessions defined as the sum of free rent and tenant improvements were $9 88.
Also an increase over last quarter, despite that our average net effective rent this quarter came in at $24 85.
Above our full year 2023 results and our trailing eight quarter average our.
Net effective rents continue to be resilient, even with continued upward pressure and concessions.
Looking across the country and National office leasing activity increased 15% quarter over quarter for J O L hitting the highest level since the first quarter of 2020.
What do you do initial data from CBRE for 'twenty six major U S markets second quarter net absorption was positive for the first time since late 2022 eight.
A broader office recovery, certainly appears underway, but especially in the lifestyle office segment.
At the market level, our new hot mixed use development in Nashville continues to see we see momentum this quarter. The team completed a 29000 square foot office lease with a professional services firm, taking the commercial portion of the project to 37% leased.
We are also now than we used negotiations with three more office users all strong name so the professional and financial services sectors totaling another 45000 square feet.
Those leases in negotiation would take the commercial portion of this project to 58% waste.
We've seen that the multifamily units at the project began in June and we are pleased with the initial momentum as well.
And Atlanta J O L noted this quarter this quarter saw an emergence of larger transactions as the average deal size increased 31% quarter over quarter and eight deals signed in the market were greater than 90000 square feet.
Our Atlanta team signed 142000 square feet of leases this quarter, including nine new and expansion leases and a notable 40000 square foot renewal of colliers at prominent tower in Midtown.
New leases, we signed in Atlanta, 33000 square feet at our newly Redeveloped $33 50, Peachtree building in Buckhead, bringing that project to 84% leased.
According to J O L. We've seen activity in Austin has remained study was tenant demand is showing encouraging signs of growth seen over 600000 square feet of net new requirements added to the market quarter over quarter for the first time since the end of 2021 in our Austin portfolio, we saw a material.
<unk> increase in site leasing activity this quarter coming in at the highest level since the second quarter of 2023.
Our team signed 10 leases for a total of 76000 square feet with a strong average net effective rent of $29 20.
We have also seen a material increase in our leasing pipeline and Austin, we could not be more encouraged by the demand. We are beginning to see once again and Austin, both within our portfolio and across the market. It is broad based from an industry perspective, including interesting demand from the technology sector.
Richard: And Phoenix, while the overall market experienced negative net absorption year to date and to be where our portfolio is concentrated in the first half of the year saw positive net absorption.
We have seen firsthand in uptick in leasing activity, which we noted weight last year.
Our Phoenix team completed 56000 square feet of leases this quarter of which over half were new.
I'm also thrilled to report, but we are in waste negotiations with a 52000 square foot new customer that will occupy the first two floors of Hayden ferry one overall interest in Hayden ferry, which is approaching the end of its major redevelopment continues to be robust.
In Tampa that absorption is screening at its highest level since 2019 like all of our markets customers with one high quality office product of which they are beginning to be signs of less availability.
We expect this to benefit our high quality portfolio in West Shore and Heights District, our Tampa team completed an impressive 69000 square feet of leases this quarter of which 77%.
New leases.
In Charlotte our team is intently focused on finalizing plans for the material redevelopment of fifth third center in Uptown, where as you know bank of America is set to move out of 317000 square feet at the end of July next year.
We're excited about the plans we have to re energize this property, but more importantly, so are the existing customers and new prospects.
Our plans thus far.
Bartlett is arguably seen one of the largest increases in new requirements in the market over the last few quarters of any of our sunbelt markets, which bodes well for our repositioning initiatives.
Moving on to our overall leasing pipeline I would note that subsequent to second quarter and we saw our late stage pipeline and transitioned from healthy two exceptionally strong.
<unk> our late stage pipeline is now at a level not seen since late 2021 and prior to Covid.
The early stage leasing pipeline remains very encouraging as well we are optimistic about what lies ahead of us for the balance of this year and beyond.
As always I want to thank our incredible operations team has continued hard work have us positioned for a great second half of the year, we look forward to continuing this momentum together.
<unk>.
Thanks, Richard and good morning, everyone.
As Colin mentioned, we are excited to announce our acquisition of two mezzanine loans this quarter.
Its mezzanine loans were newly created from two separate senior loans originated within the past several years. The lands are secured by interest into high quality, well monetized office buildings within our sunbelt footprint, one in Charlotte and one in Nashville.
Speaker Change: First is an interest in that Barbara <unk> and approximately 400000 square foot new construction office and retail building that just delivered in the heart of South and Charlotte right down the road from a rail yard project.
At the time of our Mezz loan acquisition the asset was zero percent leased our initial investment was $14 7 million with a total commitment of up to $22 million.
Bulk of the additional funding and the timing of it will be tied to future leasing capital needs.
<unk> received a 900 basis point spread ever safer unexplained balance.
Mezz loan matures in February of 2026, with a one year extension by the borrower subject to certain criteria.
Including the restructured senior alone the initial outstanding balance totaled $91 8 million or $234 per square foot.
The second loan is secured by an interest in the borrower at radius at 2017 vintage office asset in Nashville vibrant urban core.
The 266000 square foot building with 76% leased at the time of the mezzanine loan acquisition.
The initial loan balance was $12 5 million with a potential for future funding tied to leasing capital to bring it up to $15 million cousins received an 825 basis point spread ever staffer on its invested capital.
This line matures June of 2025, I'll start with a one year extension option.
The mezzanine loan balance with the restructured senior mortgage loan the outstanding balance in Nashville is currently $77 9 million or $293 per square foot.
These structured investments are consistent with our core strategy adult Billy and Accretively invest in sunbelt lifestyle office environments.
While this represents a modest investment in dollar side. It was a creative opportunity to allocate capital and earn an attractive risk adjusted double digit returns in a time period in which the office sector has continued to reprice with price discovery still underway in many instances.
We also view this as the beginning of an interesting transaction cycle that will lead to compelling opportunity for cousins.
We are encouraged by our growing pipeline of actionable transactions that will allow us to leverage our differentiated platform I will now turn the call over to Greg.
Greg: Thanks, Kennedy and good morning, everyone I'll begin my remarks by providing a brief overview of our results.
Spending a few minutes, providing some detail on our same property performance.
Then I'll move on to our capital markets and development activity before closing my remarks, with an update to our 2024 earnings guidance.
Raul as Colin stated upfront or.
Our second quarter earnings were outstanding second generation cash leasing spreads were positive for the 40 <unk> straight quarter.
Leasing velocity was excellent with Atlanta, leading the way.
Same property year over year cash NOI increased significantly.
It was also a very clean quarter, there were no significant unusual or nonrecurring items of note.
Focusing on same property performance for a moment GAAP NOI grew four 2% and cash NOI grew five 1% during the second quarter compared to last year.
This continues a string of positive same property numbers that began in early 2022 with the most recent quarterly gains.
<unk> driven by occupancy gains at our Brier Lake property in Houston as Apache continued its moving.
And our Sanga Center, when 300, Colorado properties in Austin.
Taking a little longer view, among our markets Phoenix and Austin are generating the strongest internal growth over the past year with same property cash NOI growing <unk>.
17, 3% and seven 7% on average respectively over the past four quarters.
As Colin mentioned earlier physical utilization at our properties has continued to increase and our parking revenues have grown along with it <unk>.
Parking revenues during the second quarter increased 5%.
<unk> to the prior year and were the highest they've been since the first quarter of 2020, just prior to the Covid pandemic.
As many of you know we received our inaugural investment grade credit ratings of <unk>, two and Triple B per Moody's and S&P early in the second quarter.
These ratings provide us with another important option to access the capital markets as we execute our strategic plan, we have purposefully built significant optionality into our debt maturity schedule, which allows us to be very opportunistic.
Around when we use these credit ratings.
Looking at our development activity. The current pipeline is comprised of a 50% interest in new often Nashville, and 100% interest of domain nine and Austin.
Our share of the remaining estimated development costs is $59 million, which will be funded by a combination of our new house construction alone and our operating cash flow.
We've accelerated the estimated stabilization date at domain nine by two quarters.
To March 2025 from September.
Amazon leases almost the entirety of this property and the original intent was to complete the outfit in three phases, and we budgeted revenue recognition accordingly.
They subsequently decided to complete all the upgrade at once.
We began recognizing revenue on the first phase about a 189000 square feet in March of this year.
Based on Amazon's revised plans will still recognize revenue in the second phase at 71000 square feet in March 25, but we've accelerated revenue recognition on the third phase about 70000 square feet also to March 25 from the original September there's no impact to our 24 guidance from this change.
Yeah.
I'll close by updating our 2024 earnings guidance. We currently anticipate full year 2024 episodes between $2 63, and $2 68 per share.
With a midpoint of $2 65, and a half cents per share. This is up two pennies from the prior guidance, we provided in April and up three and a half cents from our original.
<unk> guidance.
The most recent increase was primarily driven by improved leasing activity.
Parking revenues and the acquisition of the two mezzanine loans Kennedy just discussed.
Greg: Our earnings guidance remains clean.
No significant one time nonrecurring items and no speculative property acquisitions property dispositions development starts or capital markets transactions. Many of these do take place we will update our earnings guidance Accordingly.
<unk> also continues to exclude any payments of $9 $6 million unsecured claim in the SPV bankruptcy case.
The exact timing and amounts of recovery against this claim is not yet known.
But unsecured SBB bonds are currently trading around 60 cents on the dollar.
So we do anticipate there will eventually be significant value in this claim.
Bottom line, our second quarter results are excellent.
And we're increasing earnings guidance for the second straight quarter.
I believe we were one of the very few office reached forecast positive <unk> growth in 2024.
Our best in class leverage and liquidity position remains intact.
Office fundamentals are improving with our leasing pipeline and returning to pre COVID-19 levels.
And we are beginning to deploy capital into compelling and accretive investment opportunities.
He says are coming together and we entered the second half of 'twenty four in a terrific position to create meaningful value for our shareholders over the coming quarters.
With that let me turn the call back over to the operator.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have any question. Please press the star followed by the one in your Touchtone phone.
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Once again that is star one should you wish to ask a question.
Your first question is from Blaine Heck from Wells Fargo. Please ask your question.
Great. Thanks. Good morning, just wanted to start on the mezzanine transactions can you just talk about how those opportunities came to you where they are they marketed it at all.
And then whether you are continuing to look for additional mezz opportunities and if so how much in total you guys would be willing to do of that specific type of investment.
Good morning Blaine.
The transactions that we announced today were were both off market transactions that.
That we identified through relationships that we have.
Here at cousins and think we ultimately structured.
It really attractive win win.
Opportunity for both sides and I'm hopeful we'll see.
More situations and opportunities like this Kennedy Hicks and her team are out now having conversations.
About similar transactions, but also looking at a broad array of transactions, including traditional <unk>.
Speaker Change: Property acquisitions joint ventures, and and and.
And other opportunities I think as it relates to the Mezz investments.
Our bias is towards.
Equity like investments, but I think at this point in the cycle.
Oftentimes the best entry point into an investment in a lifestyle office property can be through the debt and at very attractive returns I think ultimately we'll size those that are in our appetite for those.
To yes, we wouldn't want to take it to such a large degree that.
Down the road upon pay off we're in a position, where we create kind of self inflicted earnings headwinds not being able to replace such high coupons.
But I do think we'll see more of those opportunities in this environment will absolutely pursue them, but we're looking at all types of different transactions and I'm confident we'll see some of those as well.
Great. That's helpful helpful color.
And then just one question on leasing and sorry, if I missed this but were there any large kind of short term leases in the 244000 square feet of lease exclusions on page 21 in the sup and if so can you give us any background on that and your thoughts on whether youll.
Get that space back at some point in the near future.
Yes, Helane this is Richard that's a good question.
I told you about our crew and in how we are relocating them to the domain three building, so whats showing up as a short term extension, while they're waiting on their replacement space. That's the biggest driver of the exclusions.
Okay, great. Thanks, guys.
Thank you. Your next question is from Steve <unk> from Evercore ISI. Please ask your question.
Thanks, Good morning, Richard could you, maybe just expand a bit more on the the leasing activity that you're talking about obviously sounds very positive I guess I'm just trying to understand how much of this is really growth of the overall market and how much of this is tenants you know in a flight to quality R. R.
Cousins, just trying to understand the separation there.
Sure.
A large part of the activity that we've seen in our portfolio. Obviously over the last 12 plus months has been both flight to quality and frankly arguably.
Arguably just as much flight the capital driven.
Is the pipeline that I alluded to has grown materially.
Just in the last few weeks really we're.
We're seeing.
Activity in both renewal and new <unk> and new customers within our portfolio. So we're seeing both inbound into our portfolio, but also.
Activity starting to perk up.
Frankly customers that.
Have not been willing to make long term decisions to date, but are now definitely ready to and moving aggressively to to lock in their long term real estate decisions.
Steve It's Colin I'd, just add we're also seeing a resurgence in can in migration and companies looking for that to move from the West Coast Midwest and northeast.
And not all complete relocations, but certainly a lot of large hub activity and so I think as we as we're looking at new investment opportunities in our growing conviction in the leasing market and again seeing that resurgence in.
In migration.
Is is really constructive and that had been a bit of a hibernation over the last 12 to 18 months.
And maybe just as a quick follow up there I guess Richard on the things that are coming into the portfolio or do most of those have kind of expansion needs, meaning that the new tenant is coming from the market, becoming the cousins does that often come with growth or is that more of just the musical chairs situation, where theyre, leaving one landlord I'm coming to you.
I view it as generally situations specific you got a little bit of both happening.
Certainly a dynamic in the market has been with large users to the extent. They are relocating there is some consolidation and approach of being more efficient, but but generally speaking I think it's a mixed bag depending on the specific situation of each user.
Okay, and then maybe just annoy half real quick on the apartments I realize it's very early in the leasing but you know you have leased about 7% of the units I'm. Just curious you know theres a lot of supply in the Nashville market, but how is that lease up gone how sort of pro forma rents trended or the concessions.
Greater than what you had maybe expected.
Hey, Stephen Kennedy.
So as we as Richard mentioned, we started leasing apartments in June and our <unk>.
Really encouraged by the momentum in sort of the initial feedback we're getting from our potential renters.
That's base rent that there are right, where we projected them.
We are offering and maybe a month of additional concessions initially, but I feel like we're heading a steady steady pace in terms of lease up there and also starting to see the retail picture come into view as well I'll, let switch valeant building on the momentum.
Yeah.
Alright, Kenny so you're offering one month free rent or you're having to kind of give too much free rent in order to do lease ups.
We underwrote online, but I'd say, we're getting to now.
On a little bit longer term.
Gotcha, Okay. Thanks.
Thank you. Your next question is from Nick <unk> from Baird. Please ask your question.
Hey, good morning, maybe touching a little bit on the investments, maybe Greg or call. It just like how much capacity on the balance sheet are you willing to take up leverage here for additional investments today.
Speaker Change: Hey, Nick Good morning, it's Greg so.
We've been running the balance sheet kind of at this five times net debt to EBITDA for well over a decade.
Theres only been a couple of times that we've varied from it materially you can argue it's not even material.
In both instances when we completed.
Mergers with other public companies tier and.
I just want like Parkway.
Sorry.
In both instances it went up to the mid fives and we told you at the time, we'd bring it back down to five or below and we did so historically if you look at our track record.
The highest we've gone has been kind of five five times.
And five five times gives us several hundred million dollars of capacity, depending upon what we invest in.
So so we've got significant capacity just to go there and even at five five times net debt to EBITDA, we'd have the best balance sheet in the office space. If you were willing to take it up to six I'm not signaling anything here on this call, but if you were willing to take it there I mean that that capacity almost triples. So we've got significant capacity, if we choose to use it.
Just on the leverage side.
That's really helpful. And then Richard you kind of touched on but the increase in the late stage pipeline could you quantify like what that levels were in 2021, Unlike absolute basis, and then just the mix between renewal and new leasing in that pipeline.
So that the levels, we saw that in what we're seeing now are <unk>.
Approximately 1 million square feet in the pipeline.
The late stage and in the mix right.
Right now is very consistent with what we've seen in the past in terms of new and renewal.
Speaker Change: That's it for me thank you.
Thank you. Your next question is from John Kim from BMO capital markets. Please ask your question.
Thank you.
On the Mezz investments its attractive yield for you it's expensive debt for the borrower.
Can you talk about your confidence in their ability to service and repay the debt and where you are as far as loan to value at your part of the capital stack.
So it's again it.
Ultimately just to clarify here we purchased.
<unk> in a newly created mezzanine position from the existing senior lender. So.
Obviously, we have a very attractive coupon.
But ultimately to the existing borrower.
Speaker Change: There is no change to to their current interest rate.
So I don't want to speculate a lot longer term obviously.
As it says maturity happen, we'll evaluate those and those borrowers will will will make the best decision for.
For them, we do think kind of going in.
As an investment again, the returns are highly attractive and accretive and it ultimately collateralized by high quality lifestyle office.
And we're very comfortable with that debt investment as a as a debt investor you you ultimately do need to be comfortable with your collateral in the event.
That takes a different path and in the situation that the basis of our debt balance we're highly comfortable.
With where we are and however, it plays out.
And where do you see the loan to value today.
I don't know that I'm going to comment.
Specifically on.
What value is but I'd say, they're highly levered, but.
But I don't want to comment specifically as to.
The number on value.
Okay Kennedy mentioned pre.
Prepared remarks that onetime eastwood's.
As your percent leased radius, 76% leased at the time and the investments I don't know if im reading too much into that but as they've gone up since then.
Not materially, but obviously, but have the ability for future <unk> as they continue their lease ups.
Okay.
Yeah.
These buildings are well.
Well located in great Submarkets.
And we think over time in Submarkets that we will have.
Kind of a declining availability of lifestyle office so again.
Our highly.
Highly comfortable.
And the underlying real estate here.
And then final question on Charlotte I think you guys mentioned.
It's the market with the largest amount of new requirements in the markets and.
The ability to backfill some of the Bofa.
Bofa space at fifth third center, but I was wondering if you could just expand on your comments.
Sure I can I can take that.
Yes.
What I, what I said was that we've seen the largest increase in their requirements.
Say that Colin mentioned this earlier, but but it's very encouraging and that that activity increase is made up of not just in market existing users within Charlotte, but were seeing frankly, both actual primary headquarters relocation potential.
Starting to percolate, but also regional headquarters.
That are both inbound and and also in market relocation. So we're seeing a broad based.
Selection of the types of demand within Charlotte.
Speaker Change: Again, a testament to the fact that the users are now willing to clearly make decisions for the long term.
We feel good about one the redevelopment plans at fifth third center, but also.
The condition of the space that we do have for.
For Bofa about half of it is recently been improved by the bank.
And so it represents a great opportunity for users to come in.
And have ready to go space, that's essentially plug and play so we.
We have some good offerings both at.
At that building, specifically and also have an ability to meet different types of demand.
I appreciate it thank you.
Thank you. Our next question is from Dillon Brzezinski from Green Street. Please ask your question.
Hi, guys just wanted to go back on your comments regarding a pickup in touring activity I guess can you kind of comment on what is sort of driving that is it more or.
Speaker Change: A better outlook for the macroeconomic economy is stronger return to office trend just sort of curious if you can give any broad strokes on what is sort of driving the improving leasing activity that you've seen.
Yeah, I think it's good.
I characterize that a bit as a return to normalcy and and I think I think we're going to hear a little bit less about return to office I think that is kind of largely underway and.
And I think most companies are.
Are kind of looking forward and kind of putting aside whether they are folks who are going to be in four days, a week or five days, a week or three and a half days a week in saying, we generally need.
We generally need the same amount office space, and we haven't made decisions and and so.
They are back.
All in the market and I'd say, a more normalized way looking for space and so kind of going forward.
The trends that will kind of continue to drive the market are the same ones that have driven over the last 10 years, which is certainly the flight to quality.
That we've discussed but the migration to the Sunbelt will will continue to be.
A very powerful tailwind and I think in time, we'll hear a little bit less about return to office in flight to capital and kind of these other I'd say transitory trends.
That's helpful. And then maybe if you can just comment on sort of net effective rents on new leases are you guys starting to see an ability to be able to push base rents or maybe sort of reduce the amount of free rent or Ti vo your operator tenants.
Generally speaking, we've been able to push face rents to help as you can tell from our net effective rents to help offset the higher concessions, but yeah. It's been face rent and then obviously term as another lever we can pull to help offset higher concessions.
Thanks.
Thank you. Your next question is from mono.
Please ask your question.
Good morning, I just wanted to follow up on that last question I really wanted to get a sense by market. If you could talk to which areas you're seeing the strongest.
Yeah.
Areas to push rent growth or is it pretty consistent across all.
It's Camille it's fairly consistent again all of our the entirety of our portfolio at a lifestyle buildings in strong Sun belt markets and so we're benefiting from this activity both within the market and also attracting.
New customers into those markets in terms of where we're able to.
Ultimately drive.
Net effective rents as it were.
Be a function of the supply and demand.
Within those markets and so the market today, like Atlanta, or Tampa, again, which which in the lifestyle segment.
Are fairly tight we're having.
A good degree of success.
Market like Austin, which has a bit.
Speaker Change: Higher supply.
That is yes.
It is a little I'd say more stable.
And but I think in time.
The in migration that is now percolating once again in Austin, I think that will prove to be a kind of a short term phenomenon and again longer term. We think the sunbelt migration is a flight to quality, you're gonna be really powerful and cousins is sitting right at the intersection of those trends.
Got it so can you talk to what the mark to market opportunity.
As for the leases that are expiring in the back half of the year.
Well I'm not going to.
Provide any specifics just yet we want to see ultimately which leases.
Speaker Change: We sign in which quarter in that mix as always.
Determinative of where that mark to market is but as Greg mentioned earlier, we've had 41 straight quarters.
Positive mark to market and we're optimistic about the second half of the year.
Okay, great and the cousins team continues to deliver strong operating results and emphasizes how driving cash flow.
A key priority. So when you consider we've probably pass the floor on the portfolios as vacancy levels coming out of Covid at what point does the board start to consider raising the dividend again.
Emil it's Greg.
<unk> been pretty consistent in public about our dividend policy, we will look at.
And.
And target our dividend as a percentage of F&B and it has run for.
Many many years right around 70% to 75% of F&B.
If anything it's been a little bit below that as we've taken a conservative approach over the last few years, just considering the volatility.
In the markets and so again the board will make their own decision surrounding our dividend policy, but it'll be driven around.
And paying out an appropriate percentage of it.
Going forward.
So.
Speaker Change: It'll be as simple as that.
Okay. Thank you.
Thank you. Your next question is from you Paul lineup from Keybanc capital markets. Please ask your question.
Great. Thank you thanks for taking my question.
Richard you mentioned.
Testing demand from Tech and Austin.
What did you mean by that and any additional color you can add there in terms of what type of tag or size or term.
Alright.
On its face value will just start seeing interesting and compelling demand from from technology companies I'd say there.
You might consider kind of old line technology, and some that you might consider more.
Modern and current day technology users, but but it's it's.
Speaker Change: It's definitely a noticeable trend that we're seeing that it has increased relative to the last few quarters per year.
Alright, great that was helpful. And then Greg could you talk about your your floating debt strategy. Here. You currently have about 16% floating and you know how are you thinking about that today, given where rates are and the potential rate cut in September.
Sure.
We've run our floating rate debt exposure very consistently over the last decade, it's been give or take 20%. We haven't really adjusted is based upon what we think the fed may or may not do we want to have a little floating rate debt available on our balance sheet. So that if we sell something we have a use of proceeds that makes sense for our shareholders.
So we're right about where we need to be.
And I think that will stay there.
Great that was helpful. Thank you.
Yeah.
Thank you. Your next question is from Peter <unk> from Jefferies. Please ask your question.
Yes. Thank you. So there were some positive trends on net new requirements in Austin This quarter just according to some of the brokerage reports in VTS data.
But still a lot of supply coming online some of which is in the downtown market. That's competitive mature assets. Just wondering if you could give a general update on how things feel on the ground there from a supply demand perspective, whether you're sort of seeing any inflection in demand in.
Starting to to take up some of that new supply.
Speaker Change: Yes. Good question Peter It is.
As I mentioned earlier.
Austin does have a bit of supply that I would say was pulled forward.
Let me through some of the exuberance of 2020 in 2021.
And.
It's largely driven by an anticipatory job growth in the tech sector, which then moderated over the last 12 to 18 months.
But I think importantly, Austin is still a highly desirable market for inbound growth.
But that had gone into hybrid hibernation, we're now starting to see that activity pick back up and so.
What I see in Austin is really just a short term.
Supply issue that will we think quickly.
Speaker Change: Rebalance itself is that demand fills up the new supply and there really is going to be nothing new started.
For the foreseeable future in Austin, So we view it as a kind of a short term transitory trend and are encouraged to see the demand re emerge and then ultimately get get Austin too.
Stabilized levels that it's been in the past.
Alright, that's helpful and then a similar question, but just overall in your markets.
What sort of the tenor the behavior, you're seeing from from the Big Tech tenants today, and how does that sort of shifted this year.
Yeah, again I think the.
Speaker Change: The.
Speaker Change: Largest tech tenants.
Are going through a process of becoming more efficient.
And in certain instances that has meant fewer people.
But at the same time, we are starting to see their trends.
As it relates to being back in the office and then I'd say importantly, starting to see their earnings grow once again, and I think as that earnings growth.
Becomes tangible I think the hiring will follow and so we're optimistic and in the not too distant future that youll see kind of large big tack back in the game.
Speaker Change: But I'd say to date, it's still relatively moderate.
That's all for me Thanks, Tom.
Alright, thank you.
Thank you. Your next question is from Brendan Lynch from Barclays. Please ask your question.
Great. Thank you for taking my question.
You've talked about scaling in Nashville in the past, maybe you could kind of rank order, where mezz financing would place relative to more J vs or direct ownership or maybe even <unk>.
Acting in distressed debt.
And you're asking specifically in Nashville.
Correct.
Yeah.
<unk> is without question.
A priority for us to grow and scale, our business and ultimately justify an operating platform on the ground.
We've got a great start with our new horse development project, but in time.
We'd certainly like to add more square footage in the market and I think ultimately our strategy in Nashville will be.
Consistent with our strategy as a company as a whole which is to invest in trophy lifestyle office properties or those that can be repositioned into that.
That quality and Kennedy and her team will be creative.
As it relates to as a property traditional property acquisition available and makes sense.
Wed absolutely consider joint ventures and.
And additional debt investments.
Well again as long as there that the underlying asset is consistent with our lifestyle.
Lifestyle strategy.
And I'm sure that transition would be market dependent but can you give any sense of the timeline, which you would be looking to.
Increased exposure.
Yeah again, we're very constructive on.
In the Nashville today, and we have a kind of insider's look at whats happening in the leasing and the leasing market through our work at New Hall, and so I think it'll be.
More driven by the opportunities that emerge and are those we think.
As opportunities emerge or they add pricing.
That we're comfortable with and.
So it'll be opportunistically driven.
Great. Thanks Al.
Thank you.
Thank you and your next question is from Blaine Heck from Wells Fargo. Please ask your question.
Great. Thanks, just a couple of follow ups here first on the Mezz investments can you tell us when the senior debt matures on both of those and then anything you could tell us about the profile of the borrower and these situations would be helpful.
Hey, Blaine it's Kennedy.
The senior lines have the same maturity as the mezzanine loans.
Again since they were islands are cutting from within that.
I don't really want to get into specifics on borrowers or anything like that.
But again, we like.
Like our investment in like the assets in the Submarkets that they're on.
Great. Thanks Kennedy.
And then second you guys had a strong start to the year from a same store NOI perspective was six 6% in the first quarter of $5. One this quarter when I look at the same store occupancies from last year that youll be comping against in the third and fourth quarters. It seems like they remain relatively steady around the 87, 5% range rough.
100 basis points below where you guys are today. So is there any reason to think we should see same store that's materially different in the back half of the year.
Hey, Blaine it's Greg.
A similar question was asked in the last quarterly call.
Because of that large six plus percent number.
That was associated with a negative expense number in our same property portfolio of this quarter. The expense number was slightly positive.
Speaker Change: In the second half of 'twenty three a couple of things happened that affected our same property expense numbers.
And they were surrounding tax issues. One we had some successful appeals throughout the portfolio.
We accrue taxes throughout the year and if we have a successful appeal you will usually find out about it in the second half of the year and then we adjust the accrual for the full year.
So some of that happened last year very positive outcome in the second thing even the larger thing was that there was a successful votes in the state of Texas. So lowered the property tax rates and again, we didn't find out about that until the second half of the year. So we adjusted the accrual so that year over year comp.
What drove the kind of below trend expense number in our same property portfolio in the first quarter that began to correct in the second quarter it'll correct fully in the third and the fourth quarter. So for the balance of this year, we anticipate positive same property results.
You'll see a.
A stabilization or a return to normalcy for same property expense numbers as we move past the impact of that second half 'twenty three accrual adjustments.
Very helpful. Thanks, guys.
Thanks, Brian.
Okay.
Thank you.
No further questions at this time I will now hand, the call back to Colin Connolly for any closing remarks.
Thank you all for joining us today on our second quarter earnings call. We appreciate your interest in cousins, please feel free to.
Follow up with the team if you have any additional questions have a great day.
Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect your lines.