Q4 2024 Cousins Properties Inc Earnings Call
Speaker Change: Good morning, ladies and gentlemen, and welcome to Cousins Properties' fourth quarter conference call. At this time, all lines are in a listen-only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time.
Speaker Change: I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead.
Speaker Change: Thank you. Good morning and welcome to Cousins Properties' fourth quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer, Richard Hickson, our Executive Vice President of Operations, Kennedy Hicks, our Executive Vice President and Chief Investment Officer, and Gregg Adzema, our Chief Financial Officer.
Speaker Change: The press release and supplemental package were distributed yesterday afternoon, as well as furnished on Form 8K.
Speaker Change: Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal security laws, and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors, including the risk factors set forth in our annual report on Form 10-K and our other SEC filings.
Speaker Change: The company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events, or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday, and a detailed discussion of some potential risks is contained in our filings with the SEC.
With that, I'll turn the call over to Colin Connolly.
Colin Connolly: Thank you, Pam, and good morning everyone. We had an exceptional fourth quarter at Cousins.
Colin Connolly: On the earnings front, the team delivered $0.69 a share in FFO, which is above the midpoint of our guidance.
Colin Connolly: Same property, net operating income increased 3.4% on a cash basis.
Colin Connolly: Leasing remained very strong. We completed 462,000 square feet of leases during the quarter with a 6.7% cash rent roll-up.
Colin Connolly: In addition, we invested almost $1 billion in Trophy Lifestyle Office properties in our Sunbelt Markets.
The transactions were immediately accretive to earnings.
Colin Connolly: To fund this growth on a leverage-neutral basis, we raised $469 million of equity in two separate issuances and raised $400 million of debt with an issuance of unsecured senior notes.
We released 2025 guidance last night.
Colin Connolly: The midpoint of the range is $2.78 per share, which was also above consensus, and represents approximately 3.5% growth compared to 2024. Gregg will provide more specifics in a moment.
Speaker Change: Our remarkable 2024 achievements and encouraging 2025 guidance continues to highlight the strength and resiliency of our leading Sunbelt Lifestyle office portfolio and best-in-class balance sheet.
Speaker Change: Before discussing the quarter in more detail, I will start with a few observations on the market.
Fundamentals are improving.
Speaker Change: The existing supply of office buildings is declining as older buildings are converted or torn down and new construction is almost non-existent.
At the same time, leasing demand is accelerating.
Speaker Change: During the fourth quarter, leasing volume nationwide reached a new post-pandemic peak for the third consecutive quarter.
Speaker Change: And net absorption was positive for the first quarter since 2021.
Speaker Change: We believe vacancy is reaching a peak and market tightening is not far off in the lifestyle office sector.
Return to office is transitioning to a return to normal.
Speaker Change: With these tailwinds, our team remains strategically focused on driving earnings growth while maintaining our best-in-class balance sheet.
Speaker Change: To do so, we are prioritizing both internal and external growth opportunities.
Speaker Change: Our portfolio was 89.2% occupied at year-end, up from 87.6% at year-end 2024.
Speaker Change: Bank of America's expiration in Charlotte this year is a small speed bump in that process.
Speaker Change: However, with the pickup of leasing activity and modest expirations through 2026, we believe there is meaningful upside in the cash flow of our existing portfolio in the intermediate term.
Externally, we are executing on compelling investment opportunities.
Speaker Change: During the fourth quarter, we closed on the acquisition of Vantage Southend in Charlotte with a purchase price of $328.5 million and the acquisition of Sail Tower in Austin with a purchase price of $521.8 million.
Speaker Change: Both Vantage Southend and Sail Tower are leading lifestyle office properties located in vibrant neighborhoods near other Cousins assets.
Speaker Change: In completing these strategic new investments, we were able to grow earnings on a leverage neutral basis, upgrade the quality of our portfolio, and enhance the scale of the company.
Speaker Change: Our 2024 Transaction Activity highlights the creativity of our team and openness to a wide variety of opportunities at this point in the cycle, including debt, structured transactions, joint ventures, and property acquisitions.
Speaker Change: 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 remains a priority.
While there are signs of thawing,
Speaker Change: The private capital markets remain challenging for office. Asset level debt and equity is limited and expensive.
Speaker Change: Many private equity investors have legacy issues in their existing portfolios and remain on the sidelines.
Conversely, the public markets show meaningful signs of improvement.
Speaker Change: Liquidity has grown in the unsecured debt markets and spreads have tightened materially.
Office REIT share prices have begun to rebound.
Speaker Change: This creates a compelling investment opportunity for Cousins as private and public market valuations finally converge.
Speaker Change: In conclusion, the office market remains highly bifurcated. There is little to no leasing demand or capital for commodity and older vintage properties.
Speaker Change: Values for these properties are resetting so they can be reimagined or demolished. This process is now underway.
Speaker Change: At the same time, the lifestyle office market is improving. New construction is at historic lows while leasing demand is accelerating.
Speaker Change: The market is rebalancing and a shortage of premium lifestyle states is not far off.
Speaker Change: Cousins is uniquely positioned for this environment. We built the company to thrive during all economic cycles, and today, we are in a highly advantageous position.
We are in growing SunBelt markets.
Speaker Change: Bank of America ranks our portfolio as the highest quality among all office REITs.
Our leverage is the lowest across the sector.
Speaker Change: The pricing on our bonds trade at the tightest spread to treasuries among all traditional office companies.
Speaker Change: In short, we have great access to capital and we see great opportunity. We are excited about the future for Cousins.
Richard Hickson: Before turning the call over to Richard, I wanna thank our talented Cousins employees who are the foundation of our success. They're dedicated, hardworking, and provide excellent service to our customers. Thank you.
Richard
Thanks, Colin. Good morning, everyone.
Richard Hickson: Our operations team wrapped up 2024 with another fantastic quarter, delivering one of the most remarkable operating years in our company's recent history.
Richard Hickson: In the fourth quarter, our total office portfolio end of period leased and weighted average occupancy percentages were 91.6% and 89.2% respectively. Both metrics were sequentially higher.
Richard Hickson: Further, I'm thrilled to say that our total office portfolio occupancy ended 2024 a full 160 basis points higher compared to the fourth quarter of 2023.
Richard Hickson: Our fourth quarter occupancy included the weighted average impact of both of our fully occupied December acquisitions, Vantage South End in Charlotte and Sail Tower in Austin.
Richard Hickson: I would note that these assets only accounted for about 20% of our weighted average occupancy increase in the quarter, with most of our occupancy build driven by lease commencements in Atlanta, Phoenix, and Tampa.
Richard Hickson: I have one reminder on occupancy, the long anticipated move outs of OneTrust in Atlanta and Bank of America in Charlotte will happen this year.
Richard Hickson: which we still expect to lead to a downdraft in occupancy and a temporary trough through the third quarter. However, we have exceptionally low expirations of only 12.1% of annual contractual rent through the end of 2026.
Richard Hickson: When coupled with continued strong leasing demand for Lifestyle Office, we see occupancy building back toward the end of this year and beyond.
Richard Hickson: Now, on to results. We seen in the fourth quarter was once again exceptional for Cousins.
Richard Hickson: Our team completed an impressive 45 office leases totaling 462,000 square feet with a weighted average lease term of 8.3 years.
Richard Hickson: This was our second highest quarterly scored footage volume of this year, and our total signed activity for the year exceeded 2 million square feet, the most since 2021.
Richard Hickson: Regarding lease economics, our average net rent this quarter came in at $35.81 and $39.77 for the full year. This quarter average leasing concessions defined as the sum of free rent and tenant improvements were $9.21.
Richard Hickson: This compares favorably to our average concessions in the first half of 2024 of $9.56. Recall that concessions were well below trend in the third quarter, driven by our sizable lease with IBM and Austin.
Richard Hickson: Average net effective rent this quarter came in at $23.88 and $28.17 for the full year. Our full year number represents an impressive 14.7% increase over 2023. Finally, second generation cash rents increased again in the fourth quarter at a healthy 6.7%.
Richard Hickson: At the market level, our new HOF development in Nashville continued its momentum. This quarter, the team completed 7,100 square feet of office leases with two customers, taking the commercial portion of the project to 46% leased.
Richard Hickson: We are also in advanced lease negotiations with an additional 18,000 square foot financial services customer that would take the commercial portion of the project to 50% leased.
Richard Hickson: Multifamily leasing continues to progress nicely as well, as we were at 38% leased to end the fourth quarter, a sequential increase of 17 percentage points.
Richard Hickson: This equates to an average of about 30 units leased per month.
Richard Hickson: In Atlanta, the broader market's 2024 leasing volume was the highest since 2016, and sublease availability dropped to its lowest level in eight quarters, according to JLL.
Richard Hickson: Across our operating portfolio, we signed a very strong 251,000 square feet of leases this quarter and rolled up cash rents 8.9%.
Richard Hickson: Importantly, our Buckhead activity included the long-term renewal of law firm Greenberg Traurig for 100,000 square feet at Terminus 200.
Richard Hickson: Greenberg was previously set to expire in 2026 and with this renewal we now only have one expiration over 100,000 square feet left in our entire operating portfolio in the calendar year 2026.
Richard Hickson: Turning to Austin, JLL noted that vacancy appears to have stabilized with overall market quarterly leasing activity totaling 1.2 million square feet and a second straight quarter of positive net absorption.
Richard Hickson: Our Austin team signed a healthy 80,000 square feet of leases this quarter, rolling up cash rents 7.5%, and our portfolio now stands at 94.9% leased.
Richard Hickson: As an update, we remain very encouraged by our progress in renewal negotiations with Time Warner, which occupies 112,000 square feet at domain point and expires in September of 2025.
Richard Hickson: Please note this is our only material 2025 expiration whose outcome is not yet determined and we view our renewal assumption for Time Warner included in our 2025 guidance to be relatively conservative.
Richard Hickson: In Charlotte, the office market ended 2024 with its first positive net absorption since 2021, and broader market new leasing volume in the fourth quarter was 871,000 square feet, marking the highest level in nine quarters, all per JLL.
Richard Hickson: In our portfolio, we remain highly focused on the major redevelopment of both 550 South and Fifth Third Center.
Richard Hickson: Given that new office construction activity in Charlotte is at its lowest level since 2013, we anticipate our redevelopments will be well received by lifestyle office seeking customers in the coming years.
Richard Hickson: In Tampa, the market remained strong throughout 2024, demonstrating resilience through multiple hurricanes. This quarter, our Tampa team signed 57,000 square feet of leases, of which 74% were new and expansion leases.
Richard Hickson: Our Tampa portfolio occupancy increased a full percentage point in the fourth quarter and is currently 95.6% leased.
and Phoenix.
Richard Hickson: CBRE noted that the market produced its largest quarterly positive absorption this quarter since the fourth quarter of 2019. Demand remains concentrated in amenity-rich spaces, particularly in Tempe and the Camelback Corridor, which we have seen firsthand.
Richard Hickson: This quarter, our Phoenix team also signed 57,000 square feet of leases, of which an impressive 100% were new leases. The team also rolled up cash rents 4.6% in the quarter.
Richard Hickson: Looking ahead, our leasing pipeline at every stage remains healthy and we anticipate continued leasing and operational momentum. Despite macro economic uncertainty, fundamentals in lifestyle office are broadly encouraging.
Richard Hickson: As we have all seen in recent news headlines, the return to mostly in-office work is gathering steam every passing week.
Richard Hickson: This has resulted in demand for lifestyle office space in a time when new construction activity is hitting historic lows. We believe these tailwinds will play out even further in 2025.
Richard Hickson: As always, I want to thank our talented operations team whose exemplary work made 2024 a remarkable year. We are looking forward to continuing the momentum in 2025.
Kennedy
Speaker Change: Thanks, Richard. As discussed, the fourth quarter was an exciting one for investment activity. We completed two significant asset acquisitions that align with our core strategy to thoughtfully and accretively invest in Sunbelt lifestyle office environments while maintaining our strong balance sheet.
Speaker Change: In early December, we acquired Vantage Southend in Charlotte in an off-market transaction.
Speaker Change: Vantage South End is one of the most dynamic lifestyle office environments in the Southeast, offering 639,000 square feet of office and retail across two buildings that delivered between 2021 and 2022.
Speaker Change: The 97% Lease Project features a diverse rent role leased to a variety of professional service firms and high-profile corporate users who have heavily invested in their workspaces with a focus on employee experience.
Speaker Change: The restaurants at the project are some of the busiest in the city, creating an exciting, energetic amenity base for both customers and the community. Clearly from a quality perspective, this asset is an excellent fit for our portfolio and strategy.
Speaker Change: From a market perspective, it's also very complementary to our Charlotte portfolio, which is now over 2 million square feet.
Speaker Change: Vantage is located just down the street from our 98.7% leased rail yard project and our south end station development site.
Speaker Change: furthering our operating efficiencies and deepening our already strong customer relationships within the market. We are encouraged by the recent overall activity and leasing interest in Charlotte as a whole.
Speaker Change: The initial cash yield is 7.4%, with a gap yield of 8.4%, a spread driven by over 9 years of remaining lease term.
Speaker Change: Next, in mid-December, we close on the acquisition of Sail Tower in Austin. Sail Tower is an 804,000-square-foot skyline-defining trophy asset in downtown, steps from Lady Bird Lake.
Speaker Change: The building delivered in 2022 and features incredible protected views, a variety of terraces and outdoor spaces, and an amenity base that's unrivaled in the city.
Speaker Change: Like Vantage, the trophy quality of the asset and its location is additive to our portfolio and enhances our customer profile and overall weighted lease term.
Speaker Change: We're excited to add this to our Austin portfolio and let our strong team on the ground add their operational expertise.
Speaker Change: There is approximately $37.2 million of outstanding tenant improvement allowance, $32 million of which we will fund at the end of the second quarter this year.
Speaker Change: All in, our basis is extremely attractive and below replacement costs in a market with dwindling land sites.
Speaker Change: Our initial gap yield for the first 12 months equals 8.7%.
Speaker Change: In this instance, the in-place rents are nearly 25% below what would likely be achieved for available space in the building today. Once again, this is a strategic transaction that provides accretion, growth, and long-term potential upside.
Speaker Change: Gregg will speak to the capital markets transactions that funded these acquisitions on a leverage neutral basis.
Speaker Change: Also in the beginning of the fourth quarter, and as discussed previously, we acquired a $138 million loan secured by St. Ann Court in Dallas.
Speaker Change: The loan had an initial maturity date of December 7, 2024, and the borrower paid us off in full on January 7, 2025.
Speaker Change: Cousins received default interest for that time period, in addition to the base interest rate of SOFR plus 366 during our investment period.
Speaker Change: Looking forward, we remain focused on our core strategy and intend to continue to identify and execute on Sunbelt transactions that are consistent with the quality of our portfolio and will allow us to grow in an accretive manner.
Speaker Change: We believe we continue to have a competitive advantage relative to other office buyers, both public and private, and are optimistic that 2025 will be another active investment year for Cousins.
With that, I will turn the call over to Gregg.
Gregg Adzema: Thank you, Kennedy. I'll begin my remarks by providing a brief overview of our results.
Gregg Adzema: And I'll spend a few minutes on our same property performance before moving on to our capital markets and development activity.
Gregg Adzema: Before closing, with a discussion on our balance sheets and providing a little more color on our initial 2025 earnings guidance.
Gregg Adzema: Overall, as Collins stated up front, our fourth quarter results were outstanding. Second generation cash leasing spreads were positive for the 43rd straight quarter.
Gregg Adzema: Leasing velocity was excellent and the same property year-over-year cash NOI increased.
Gregg Adzema: It was also a very productive quarter as we accretively invested almost $1 billion.
Gregg Adzema: Focusing on same property performance for a moment, GAAP NOI grew 5.3% and cash NOI grew 3.4% during the fourth quarter compared to last year.
Gregg Adzema: This continues a string of positive same property numbers that began in early 2022.
Gregg Adzema: With the most recent quarterly cash increases largely driven by occupancy gains at our 3350 Peachtree property in Atlanta and our Tempe Gateway and 100 Mill properties in Phoenix, as well as a continued pickup and parking revenues.
Gregg Adzema: I also wanted to take a moment to point out the lumpiness that can sometimes run through our quarterly same property expense numbers. Usually it's driven by property taxes.
Property Tax True-Ups
as we receive actual assessments from the taxing authorities.
Gregg Adzema: can push the quarterly numbers around quite a bit. So it's always best to use longer timeframes when looking at expense numbers. For example, our same property tax expense for the fourth quarter was up 21.9% over last year.
Gregg Adzema: driven by a favorable true up in the fourth quarter of 23. However, you zoom out a little bit and look at the entire year, property tax expenses for our same property portfolio were essentially flat.
Gregg Adzema: Moving on to our capital markets activity, we completed three significant transactions during the fourth quarter in support of the investment activity Kennedy discussed earlier.
Gregg Adzema: In November, we issued 6 million shares of common stock, generating proceeds of $186.1 million.
Gregg Adzema: In December, we issued 9.5 million shares of common stock, generating proceeds of $282.8 million. And also in December, we completed our second investment grade bond offering, issuing $400 million of notes at an initial yield of 5.46%.
Gregg Adzema: Now that we have two unsecured bond issuances outstanding, the initial $500 million issuance completed in August, and this more recent issuance completed in December, relative pricing is settling in.
Gregg Adzema: And our bonds currently trade at the tightest spread to treasuries among all traditional office REITs and much tighter than any secured debt options currently.
Gregg Adzema: We also have ample balance capacity to pursue investments as Net Debt to EBITDA is an industry-leading 5.16 times and our liquidity position is excellent.
Gregg Adzema: Turning to our development efforts, the current pipeline is comprised of a 50% interest in Newhoff and Nashville and 100% of Domain 9 in Austin.
Gregg Adzema: Our share of the remaining estimated development costs is approximately $39 million, which will be funded by a combination of our Newhoff construction loan and our operating cash flow.
Gregg Adzema: I'll close by providing our initial 2025 earnings with a little color. We currently anticipate full year 2025 FFO between $2.73 a share and $2.83 per share with a midpoint of $2.78.
Gregg Adzema: This is up 9 pennies per share or approximately 3.5% over our 2024 results.
Gregg Adzema: Our guidance includes the disposition of our bankruptcy claim with SVB Financial Group, which we sold for $4.6 million earlier this week.
Gregg Adzema: This will run through our other income line item in our P&L and it is included in FFO.
Gregg Adzema: Our guidance also includes the assumed refinancing of the $250 million senior note that matures on July 6th. This is our only debt maturity this year.
Gregg Adzema: Finally, our guidance assumes the mezzanine loan we have on the Radius property in Nashville is paid off at par on September 30th.
Gregg Adzema: Our guidance does not include any speculative property acquisitions, property dispositions, or development starts. If any of these do take place, we'll update our guides accordingly.
Gregg Adzema: One quick note before closing, there's a typo on the development pipeline schedule in our supplement.
Gregg Adzema: We mistakenly changed the stabilization date for our Domain 9 development.
Gregg Adzema: We have updated this in the supplement and posted it on our website.
Gregg Adzema: Bottom line, our fourth quarter results are excellent, and our initial 2025 guidance indicates the second straight year of earnings growth. I believe we are one of the very few office REITs to generate positive FFO growth in both 2024 and forecast for 2025.
Our best-in-class leverage and liquidity position remains intact.
Gregg Adzema: Office fundamentals continue to improve with accelerated leasing and declining new supply, and we continue to deploy capital into compelling and accretive investment opportunities. We look forward to reporting our progress in the coming quarters. With that, let me turn the call back over to the operator.
Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Gregg Adzema: Should you have a question, please press the star followed by the 1 on your touchtone phone.
Questions will be taken in the order received.
Gregg Adzema: Should you wish to cancel your request, please press the star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys.
Gregg Adzema: Once again, that is star one, should you wish to ask a question.
Speaker Change: Your first question is from Lane Heck from Wells Fargo. Your line is now open.
Lane Heck: Great. Thanks. Good morning. Can you talk a little bit more about the investment pipeline as you look into 2025? Have you found that the acquisition market has become more competitive? Does that change your strategy or the size of your pipeline at all? And I guess just generally, what's your confidence in being able to continue to make, you know, accretive investments this year?
Lane Heck: Good morning, Blaine. It's Colin. The pipeline remains, I think, very strong, and I think from Cousin's perspective, just stepping back as we look at the market and the opportunity today, I think fundamentals
are approving.
Lane Heck: New Supply is virtually non-existent, and we're seeing leasing demand accelerate.
And at the same time.
Lane Heck: The capital market still remains somewhat dislocated, with many of the private players still on the sidelines, struggling with limited, and I'd say relatively expensive, secure debt. So I think it's a particularly compelling time for Cousins to invest.
Lane Heck: And I think as we come out of this dislocated market, we are hopeful you're going to see more transactions, but I think the competition is still relatively limited.
Lane Heck: and we hope that we're, again with an advantageous cost of capital, a preferred buyer for groups that are looking to monetize high-quality office.
Speaker Change: Great, that's helpful. Can you just talk about the mix between the opportunities on high-yielding debt versus operating properties that are in your pipeline?
It's certainly, for us, the bias is typically is equity.
Speaker Change: positions. But again, we remain very constructive at this point in the cycle, investing in Trophy Lifestyle office. But at this point in the cycle, sometimes the best way to invest from a risk-adjusted perspective at the right basis could be through debt.
Speaker Change: We certainly demonstrated an openness and a willingness to invest in
the debt part.
Speaker Change: of the capital structure, if it's, you know, the quality of the asset.
Speaker Change: If we're comfortable with any outcome, we'll certainly look at those opportunities.
and potentially do more of them. But the pipeline today.
has kind of a wide variety of opportunities.
Speaker Change: Our long-term bias is as an equity investor, but again, at certain points in the cycle, us having the flexibility to invest across the capital structure I think is differentiator, and we'll continue to evaluate all opportunities.
Speaker Change: Again, that are consistent with the long-term strategy of continuing to build this premier portfolio of the highest quality lifestyle assets in the Sun Belt.
Speaker Change: Okay, great. That's helpful. And then just lastly, related to that on the funding side, should we expect, continue to expect kind of large deals? If you have them, will be paired with an equity raise or do dispositions or any other sources of funding make sense at this point?
Thank you.
Gregg Adzema: Hey Blaine, it's Gregg. Good morning. It's we're going to look at it on a case-by-case basis. You know, right now we can clearly invest
Gregg Adzema: on an accretive basis for these new acquisitions for using, you know, fresh capital of debt and equity. And we've proven that over the last few months.
Gregg Adzema: But again, it'll depend on what we're looking at at the time we're looking at it. Sometimes it might make sense to sell something to fund it. But rest assured, whatever we do, these acquisitions, the first target is to be a creative and on a leverage neutral basis.
Okay, great. Thank you all.
Explained.
Speaker Change: Thank you. Your next question is from Jeffrey Spector from Bank of America. Your line is now open.
Speaker Change: Great, thank you. Just, you know, sitting back and thinking about all of the comments and how, you know, quickly the markets are improving and
Speaker Change: You know, the accomplishments you had in 24, I guess just sitting back when you, you know, talked about your plan for 25, or if you could do a three-year plan, has anything changed in terms of the three-year plan or messaging, you know, to leasing this year? Thank you.
Speaker Change: Good morning, Jeff. It's Colin. And really, you know, our plan remains unchanged and it is firmly centered around continuing to execute, you know, the strategy of building the leading
Speaker Change: Sunbelt Lifestyle Office Company with, you know, the best assets in the most resilient submarkets with the highest growth. And our plan around that, as I mentioned earlier, is
Speaker Change: is kind of multi-pronged. We're going to continue to first prioritize organic growth within the portfolio. That means driving occupancy.
Speaker Change: back to more stabilized levels and we feel like we're on a path.
Speaker Change: to do that. Secondly, in this environment, we are going to capitalize on external growth opportunities.
Speaker Change: And we certainly demonstrated that last year, and we think the environment is still positive for that and potentially still in the early innings coming out of a dislocated office capital market.
And third, we're going to continue to.
Speaker Change: maintain a Fortress best-in-class balance sheet that gives us the flexibility to again capitalize on opportunities both in driving leasing market share
as well as compelling and accretive new investments.
Speaker Change: Great, thank you. And so to confirm, I know Kennedy also talked about the criteria for markets in terms of your current positioning, Tampa, Phoenix, both around 8, 9%.
Houston 4%, I guess.
Anything new on your approach to those markets? Thank you.
Not at all. I think...
Speaker Change: We, as we look at our current geographic exposure, we're going to remain focused on the Sun Belt.
Speaker Change: And I think we would hope to see our market share in certain markets like Tampa, as you mentioned, or Dallas.
Speaker Change: Nashville, Raleigh, Charlotte, continue to grow over time. And so we'll stay focused and look at opportunities in Atlanta and Austin and places where we've got large share today. But we'd certainly like to grow our market share in some of these other terrific cities that we've been active in across the Sunbelt.
Speaker Change: Thank you. And then just last, can you talk about leasing near-to-date messaging conversations with let's say technology firms in your markets? Thanks.
Sure, this is Richard.
Speaker Change: You know, the momentum continues. And so we feel really good that from 2024, where we clearly had great volume.
really proud of what we accomplished. That's that's absolutely caring.
Speaker Change: into this calendar year. And, you know, technology companies are part of that conversation, without a doubt. So, so we're, we're optimistic about continuing the momentum.
Great, thank you.
Speaker Change: Thank you. Your next question is from Nick Thoma Gunnberg. Your line is now open.
Speaker Change: Hey, good morning. Maybe starting with Richard, just kind of digging a little bit more into the leasing pipeline, maybe just a little bit more commentary on the mix between new and renewals in that pipeline. And then also kind of the composition, the size of the tenants you're kind of looking at there. What's the average size if there's some larger tenants included in that?
Richard Hickson: Sure. So the mix in our pipeline is not terribly different than what it's been in recent quarters. I'd say it's a little bit lower than the 70% or so that we posted in 24, but it's still skewed to the new and expansion side. Obviously, part of that is that we don't have a lot of expirations.
Richard Hickson: immediately ahead of us, so that's going to automatically kind of...
Richard Hickson: looking to upgrade space and want to move in quickly. We're seeing some that are.
Richard Hickson: that are getting ahead of the curve, if you will, and may not have an expiration at another property a couple years out, and are looking to go ahead and take action. But there really hasn't been a big change in terms of the size of tenants that we're speaking with.
Speaker Change: And then you guys have made comments on assets like North Park willing to kind of put some leasing capital out the door to prioritize occupancy. Is there anything else in the portfolio that you're willing to kind of put dollars out and prioritize occupancy in? Or is that just like one specific of that like bottom 10% of assets that you guys have talked about in the past?
Speaker Change: Yeah, it is, you know, North Park is one of our, you know, only suburban assets.
Speaker Change: in a market that's had higher vacancy than some of our other submarkets. And so, again, as I mentioned,
Speaker Change: Consistently, in certain situations, we are absolutely going to prioritize market share.
Speaker Change: and driving occupancy, which ultimately leads to FFO growth. So we'll be cognizant of kind of that trade-off.
Speaker Change: with concessions and capital. But I think in certain instances, when we've got a competitive advantage, we are going to use it. And we are absolutely focused on continuing to drive occupancy because that does ultimately translate into FFO growth.
That's it for me. Thank you.
Speaker Change: Thank you. And your next question is from Michael Lewis from Truist Securities. Your line is now open.
Michael Lewis: Thank you. So your guidance does not include any acquisitions, dispositions, or development starts. It does sound like you're optimistic there will be acquisition opportunities, maybe even loan investment opportunities.
Michael Lewis: Is a development start highly unlikely? And maybe you could talk a little bit about, you know, how far out of whack those economics are to, you know, to start a bill to sue and how high the rents would have to be, kind of get a sense about, you know, how far we are away from, you know, another start.
Speaker Change: Good morning, Michael. Again, we did not include any speculative transactions in our 2025 guidance, nor have we
in the past, because they are, again, by definition, speculative.
Speaker Change: You know, looking forward, I do think it's unlikely to see any development starts.
Speaker Change: in 2025, but I'd tell you that we are beginning to have some conversations with large customers.
Speaker Change: who are thinking about 2028 and 2029 expirations. And I'd say they are appropriately with their leasing brokers recognizing.
of Premier Lifestyle Space.
given the rebalancing in the market.
Speaker Change: virtually no new construction today or for the last several years.
Speaker Change: So some of those conversations are picking up. I think Cousins is in a unique position again where we don't need to rely on any external financing or construction loans because I tell you that market is still
fairly challenging.
So I.
Again, continue to believe that the near-term priority...
Speaker Change: and Opportunity in 2025 will be on acquisitions, but Cousins will certainly be positioned and prepared for the longer-term development opportunity, which I do think will materialize in the not-too-distant future.
Speaker Change: I agree. And then in Austin, you know, I realize you're very well leased there. But, you know, do you think when NVIDIA makes a decision, there'll be some knock on demand from that? And
Speaker Change: maybe that market could be closer to kind of recovering and coming back faster than we think, or do you think it's probably, you know, there's supply to mop up there, and it might be a little while before the market really recovers?
Speaker Change: Well, I think you really need to drill down in particular sub-markets, and broadly speaking, we are seeing demand begin to pick up.
Speaker Change: In Austin, I'd say that's in many cases driven by technology companies coming off the sidelines.
Speaker Change: You are starting to see some relocation activity. There is a corporate relocation from California to Austin.
Announced this week. That's that's very positive
Speaker Change: I think the downtown sub-market has a greater amount of new supply that the market will need to digest and it will in time.
Conversely, if you look out at the domain,
Speaker Change: You know, our portfolio is almost 100% leased, and there's good activity out in the domain. And so I think that could likely lead to new opportunity on the development side, probably sooner than most other submarkets.
Speaker Change: Thank you. Your next question is from John Kim from BMO Capital Markets. Your line is now open.
Speaker Change: Thank you. Now that the same plan coordinates have been paid down, can you just discuss
John Kim: what your original expectations were. I know the guidance was that it was going to be paid on in December, but it seemed like a fair amount of work just for like a month and a half of income. Did you expect the MES to extend past a couple months?
Good morning, John. It's Colin. The
The
John Kim: To clarify, it was a whole loan at St. Ann's Court that we purchased. And I'd say when we made that purchase, the outcome of that was uncertain. But as I commented earlier, Cousins were focused on investing in
John Kim: Sunbelt Lifestyle Office Assets, and St. Ann's Court is clearly that. It is a top-tier
asset in Dallas, and we felt like we were investing
at a basis and a return that was highly attractive.
John Kim: and ultimately from our perspective we were comfortable with any outcome there. Ultimately the outcome was the sponsor paid it off.
John Kim: and recapitalize that asset. They obviously have a very constructive long-term view of the property and we wish them well.
Speaker Change: and Kenny comment further on how much you expect to invest in meds this year I know it's not incorporating guidance but
Do you expect a similar to greater amount?
John, it will depend and again we're opportunistic.
Speaker Change: in how we invest. Again, I think our bias is certainly to buy
Speaker Change: fee simple trophy acquisitions like we did in the fourth quarter. But from time to time, when opportunities present themselves at this part of the cycle,
Speaker Change: The best risk-adjusted return and access point is in the debt capital part of the stack. My anticipation or expectation would be
and really more of a focus on long-term ownership.
Speaker Change: But again, we will be opportunistic. But longer term, we don't have plans to build a large debt book. This is just a unique point in the cycle. When those opportunities present themselves, we'll capitalize.
Speaker Change: Okay. And on SalesTower, great asset and acquisition and credit. What's the latest on Google's?
Speaker Change: use of the building, the physical occupancy of it, and do you expect some of it to come back to the Southeast market?
Speaker Change: Hey John, this is Kennedy. So they're in the process of evaluating all of that. I think we do expect that they're beginning to move people in this year and then determining they do have a little bit of space on the sub-lease market. There's been a lot of interest in that space. So I think they're trying to figure out what makes sense relative to their long-term footprint. But they do plan to occupy and they've begun their build-out process as well.
Speaker Change: shed some of that space or sublease some of that space. We would view that as a potential
opportunity again to multi-tenant some of that building over time.
Speaker Change: and hopefully do it in accretive transactions and capitalize on, you know, the market to market.
Speaker Change: and we've had kind of similar successes. The IBM meta deal last year was an example of that, but I think that could create some long-term opportunity and we'd be interested in those discussions.
Speaker Change: Thank you. And your next question is from Steve Sokolov from Evercore ISI. Your line is open.
Speaker Change: conditions or rate or term or maybe finding other space that they're interested in, just some color there would be great to understand. Thank you.
Speaker Change: Sure, this is Kennedy. As Richard mentioned, we do, we are in late-stage lease.
Speaker Change: negotiations with a user to take almost another floor. So we continue to feel good about our floor to a quarter in terms of leasing activity. And I would say the feedback that we're getting from the markets really positive. I mean, it's a it's a unique environment with every week that goes on. There's more retail that's opened more as we've talked about, there's a lot of more people living in the apartments.
Speaker Change: We've gotten really good feedback from the resident experience there. So we continue to see good tour activity. I'd say if we don't
Speaker Change: convert those tours to leases, it's usually just because that particular user doesn't want this high end of a space. And so we are at the top of the market in terms of rents.
Speaker Change: And so certainly people love to come see it. And then sometimes they ultimately decide that that's not in their, you know, in their, in the cards economically, but we've had we've had a good success and conversions and and feel good about the ongoing interest in pipeline.
Speaker Change: I appreciate that. And maybe one quick follow-up question. What are factors you're watching out for in terms of guidance that would bring you to the lower end and also factors that would bring you to the higher end as we move through the year? What are factors we should also think about to kind of stay ahead of those ones as well?
Gregg Adzema: Sure, it's Gregg. I mean, the largest factor that we face, and we've faced it in 24 as well, are interest rates, both on the short end and on the long end.
Gregg Adzema: So if we're moving up or down, we do a 15% of our debt floating rate.
Unknown Speaker Okay. Thank you. Bye.
Speaker Change: That's right within kind of the range of what we've indicated we like to have so it's not high or low We're low leverage so typically that impact is less than it would be if we had a little more Leverage on the balance sheet, but the change in SOFR could move our results around our current base case that we provided In the guidance the Bitcoin assumes no rate cuts in 2025
Speaker Change: And then also rates in the long end. I do have to refinance at some point in 2025, or I'm likely to refinance at some point in 2025, this $250 billion unsecured note that we have maturing in the summer. And that could move around as well, and that could have an impact.
Speaker Change: As Colin stated earlier on, and I stated in my prepared remarks, we don't have any speculative transactions, so there's no risk from that.
Speaker Change: And then as Richard talked about earlier on, you know, our leasing and rate budget for 25 is consistent with what we've done in the past. So we feel comfortable with what we've provided there.
Speaker Change: Thank you. And your next question is from you, Paul Rona, from Quebec Capital Market. Your line is now open.
Speaker Change: Well, this is Richard. It's the latter. We're just, we've been engaged with them for a long time now, to your point, but we're really working through what their needs are longer term.
Paul Rona: Okay, great. That was helpful. And then, you know, I was wondering, could you give a sense of what your exposure is to, you know, GSA leases? And if minimal, you know, how do you think what's going on there could potentially impact office leasing within your markets?
Speaker Change: Pamela Roper, Jane Hicks, Unknown Executive, Richard Hickson, Jane Hicks, Unknown Executive,
Speaker Change: The exposure to GSA for Cousins is de minimis. I think we have one small GSA lease at Fifth Third Center in Charlotte and one other in North Park in Atlanta, but it's really not much to speak of.
Speaker Change: And I think that in Charlotte it's 5,000 square feet to a federal judge. I think broadly speaking, I think it'll have very little impact.
Speaker Change: I can fairly limited and in the sub markets that we operate in, and I'd say by and large, they're in lower quality and older vintage assets, I think some of which will likely be candidates for
Speaker Change: you know, very significant renovations, repurposing, or even in some cases suburban teardowns.
Morning guys. Thanks for taking the question.
Speaker Change: Appreciate your comments on sort of the acquisition pipeline and remaining relatively robust but just wanted to sort of...
Speaker Change: Get your guys' opinions on sort of bidding tents and any new buyers coming to the market that may prove competitive to you guys. Just sort of looking at anecdotes, right, the most recent one being John Gray and Blackstone effectively calling bottom in a high-quality office.
Speaker Change: You look at CMDS issuances year-to-day for office at relatively high levels compared to recent history. So just trying to get a sense for if you guys are starting to see more and more buyer activity or interested parties come into some of these transactions that you guys are looking at.
Speaker Change: Yeah, certainly we pay attention to the competitive landscape and certainly noticed or noted those comments.
Speaker Change: Coming out of Blackstone and I, you know, our reaction was very validating of what we've been trying to do.
Speaker Change: in 2024. And I do think you'll start to see some very well capitalized players see the opportunity and enter the market. I would say we have not seen any of those groups really in any scale.
Speaker Change: yet in in our Sunbelt markets. I think to a certain degree that's a function of
Speaker Change: You know, these large groups are looking to deploy a lot of capital and, you know, single transactions or even, you know, larger transactions.
Speaker Change: and tend to then have a bias towards markets like New York. And so, you know, our sense is that that will likely be the focus of some of those groups. But over time, as the markets thaw and existing private groups,
Speaker Change: Get out from under their their legacy issues the market absolutely at some point will become more competitive, but our hope is
Speaker Change: In the near and intermediate term, Cousins should be a preferred buyer, I'd say, with arguably the best cost of capital relative to our private peers, as well as our other public peers. And so we want to capitalize on that time.
Speaker Change: Thank you. Your next question is from Anthony Pallone from J.P. Morgan. Your line is now open.
Anthony Pallone: Thanks. Just a couple left for me. First, with regards to OneTrust and B of A Space, can you give us any updated thoughts on either traffic, thinking around the spaces or building, or anything updated there?
Anthony Pallone: Sure, so I'll start with OneTrust. As we've mentioned in the past, it's modern, great space that OneTrust is leaving us with. We've had
actually really encouraging activity in the...
Anthony Pallone: past couple of months. Nothing that we can say is imminent, but certainly some very good interest. So we remain encouraged that at some point that that space is going to be very attractive for the right user, is largely plug and play and ready to go.
Anthony Pallone: With regard to 5th 3rd Center and that space again that the bank doesn't depart The space until the end of July of this year we are
Very much underway in the final process of
Anthony Pallone: of the Redevelopment Planning and we'll start that as soon as we possibly can this summer.
Anthony Pallone: and I think that will generate a lot of buzz and activity, Charlotte.
has some very interesting larger requirements.
Anthony Pallone: Floating around at this point. They're all early stage and not necessarily fast-moving but
Anthony Pallone: But we view that the demand equation in Charlotte is encouraging and again, like I said in my remarks, the quality of the redevelopment at Fifth Third Center is going to be second to none and it should attract a lot of demand from lifestyle office users.
Anthony Pallone: Okay, and then just second for Gregg, just on a numbers matter, for Newhoff, can you give us a sense as to what the FFO impact is from that asset in 25 versus say where it may be once it's stabilized? I can't recall like
Gregg Adzema: If all the interests stop being capitalized or if the OPEX is flowing through, just trying to wonder what that impact is this year.
Gregg Adzema: Sure, we don't provide, you know, specifics on a property by property basis, but what I can tell you is that, you know, we ceased capitalizing interest on the apartments in the summer of 24.
Gregg Adzema: We ceased capitalizing interest on the Adaptive Reuse Office in October of 2014.
Gregg Adzema: And so all we're capitalizing interest on in 2025 is the new building of her office, which we stopped this summer.
Gregg Adzema: and the retail, which will stop in the fall. So, you know, as you know, simple algebra, if you stop capitalizing interest and you're not stabilized yet, odds are, it's not a very favorable, you know, impact to your earnings.
Gregg Adzema: And so it's a bit of a headwind for us in 25 that will clear up by the end of the year. But we already started to experience that in late 24.
Speaker Change: Thank you. Your next question is from Brenton Lynch from Barclays. Your line is now open.
Brenton Lynch: Great, thanks for taking my questions. I wanted to get a sense of how many more assets like SailTower, Vantage Southend, are on the market that are new, well leased, kind of fit your A-plus criteria that you could potentially pursue?
Brenton Lynch: Again, we have a list of assets that we're interested in that meet the criteria for us.
Brenton Lynch: and continuing to build and grow our Sunbelt Lifestyle portfolio. I'd say at the moment, officially, there are not a lot of assets that qualify there as officially on the market.
Brenton Lynch: But that doesn't mean that Kennedy and her team aren't hard at work and having a lot of conversations and in our hope like last year you know Vantage Southend was was was not on the market and you know sale tower asset had
Brenton Lynch: you know, new opportunities. So we'll continue to stay focused on that.
Brenton Lynch: And are there any markets that you would be willing to enter that you're not already active in yet?
Brenton Lynch: We're going to, again, remain focused on the Sun Belt, and we don't feel opportunity constrained.
in our Sunbelt Markets, again, over time.
Brenton Lynch: we'd certainly like to see our market presence and share grow in some of our existing markets like Dallas and Nashville, Charlotte, Raleigh, Tampa, I mean these are all markets that over time we could have a greater, I think we could have a greater market share.
Thank you.
Speaker Change: Your next question is from Lane Luxon Wells Fargo. Your line is now open.
Lane Luxon: Great, thanks for taking the follow-up. It seems at this point like you guys have stopped providing same-story-no-lie and occupancy guidance, so I guess without asking the overall ranges for the full year,
Lane Luxon: Can you talk about any recent trends in the leasing pipeline and the general drivers of same-store and occupancy throughout the year and cadence of both? Obviously, you guys have been clear about Bank of America, but color on any other nuances would be helpful. And lastly, any view on where occupancy might end up at the end of this year relative to the end of 24 would be helpful.
Lane Luxon: This is Richard. I can tackle the occupancy side of that. So we'll start the year fairly stable, and it's like we've talked about, the big
Lane Luxon: change is going to come with B of A's expiration in the third quarter. It's the end of July. So on a weighted average basis, that'll kind of filter through the system in the third quarter.
Lane Luxon: You know, we don't give specific guidance, but we do feel confident that we're going to be able to trough there in the second half of this year and begin to build back occupancy, and certainly into 26.
Okay, great. Thanks.
Speaker Change: Thank you. And your next question is from Dylan Brzezinski from Green Street. Your line is now open.
Speaker Change: Thanks for taking the follow-up. Just wanted to get your guys' view on concessions and potential prospects for net effective rent growth. Obviously, headline vacancy across a lot of your markets is still relatively high, but your portfolio is well leased if you look at
Speaker Change: Class A trophy vacancies across your markets, much in a much better shape. So just trying to get a sense for when you guys think you'll be able to start to push net effective rent growth across the portfolio. Unknown Speaker
Speaker Change: Well, we've had good luck, thankfully, despite, you know, pressure mainly in the in the area of TI's, we've had good luck building and growing that effective rents over time, especially, you know,
Speaker Change: year-over-year for 2023 to 2024, so we think we can continue to do that effectively, but like you said, demand for the lifestyle segment is
Speaker Change: vastly different than the broader office market and so we feel good that we're going to be able to execute similarly to how we've executed in the recent past.
Pamela Roper, Jane Hicks, Unknown Executive, Richard Hickson
Speaker Change: It will be situation by situation. Again, I think at a North Park, again, as I've mentioned, will be much more aggressive as it relates to concessions. So if we do an outsized amount of leasing at a building like that, that could skew a quarter to quarter number. But again, we have very few assets like that. I think generally speaking,
Speaker Change: for our kind of trophy lifestyle urban buildings, we're seeing the dynamic begin to shift to more of a more in the owner's favor than it has been, is that that market is expected to really tighten over the next couple years.
Appreciate that. Thanks guys. Have a good one.
All right, thanks, Bill.
Speaker Change: Thank you. There are no further questions at this time. I will now hand the call back to Colleen Connolly for the closing remarks.
Colleen Connolly: Well, thank you all for joining us this morning. We appreciate your time and interest in Cousins Properties. If you have any follow-up questions, please do not hesitate to reach out to Gregg Adzema or Ronnie Imbo. I hope everyone has a great weekend.
Speaker Change: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.