COUSINS PROPERTIES INC Q3 FY2024 earnings call

• Colin Connolly noted a strong third quarter with $0.67 per share in FFO, strong leasing volume (highest since 2019), and execution of compelling investments. Market fundamentals are improving with declining office supply and increasing leasing demand.
• Richard Hickson discussed occupancy trends, strong leasing activity (37 leases, 763k sq ft), lease economics (7.2% cash rent roll up, record net rent and net effective rent), and market-specific updates including Nashville development, Austin's IBM lease, and Tampa's occupancy.
• Kennedy Hicks highlighted investment activities, including acquiring a mortgage loan on Saint Ann Court and the Proscenium building joint venture, emphasizing alignment with core strategy of investing in Sun Belt lifestyle office.
• Gregg Adzema provided same-property performance details, capital markets activity (unsecured bond issuance), development updates (Neuhoff in Nashville), and updated 2024 FFO guidance.

Cousins Properties had a strong third quarter. Same-property net operating income increased 4.4% on a cash basis. Leasing was very strong, with 763,000 square feet leased during the quarter at a 7.2% cash rent roll up. Occupancy at quarter end was 88.4%, up from 87.6% at the start of the year. Average net rent for the quarter was a record-breaking $45.21, and average net effective rent also broke a company record at $34.57. The Atlanta portfolio was a significant contributor to rent roll-ups, with Austin and Tampa also seeing solid increases.

• Full year 2024 FFO is anticipated between $2.66 and $2.70 per share, with a midpoint of $2.68, up from prior guidance due to lower short-term interest rates, favorable real estate taxes, and new investment activity.
• Guidance assumes the mezzanine loan on the Radius property in Nashville is paid off at par prior to year-end and the Saint Ann Court whole loan is paid off at par on its maturity date.

• Uncertainty around loan maturities, such as the Saint Ann Court loan maturing in December, with outcomes still uncertain.
• Legacy issues for private capital market participants, which may slow the convergence of private and public market valuations.
• Potential challenges with property redevelopment and lease expirations, particularly with large vacancies like Bank of America in Charlotte.

Q: Good morning and congratulations on the quarter. Are you planning to continue to leverage your current footprint and teams? Do you see yourself looking into other Sun Belt markets?

A: Colin Connolly stated they remain focused on the Sun Belt footprint, evaluating new markets within the Sun Belt like Raleigh, Durham, Metro, and South Florida but not imminent.

Q: Can you talk a little bit more about the Saint Ann Court mortgage acquisition?

A: Colin Connolly said it's too early to speculate on the loan's outcome, but they expect to be paid off at maturity though outcomes are uncertain.

Q: I wanted to touch on the leasing pipeline, the kind of late-stage pipeline that break out between new and renewal leasing?

A: Richard Hickson said the pipeline is still leaning towards new and expansion leasing, driven by a good exploration profile.

Q: One of your peers this quarter mentioned an uptick in interest for build-to-suits in a lot of the Sun Belt markets. Just curious if those conversations are picking up for you as well?

A: Colin Connolly said conversations are happening, with new development and build-to-suits starting, likely to sequence with acquisitions as the market evolves.

Q: Thanks for taking the question here. And not to beat a dead horse on the Saint Ann Court loan, but just sort of curious, you talked about likely being paid off at maturity or that’s being what’s implied by guidance or possibly assessing your rise in remedies if you don’t get paid off?

A: Colin Connolly said they are highly comfortable in the quality of the collateral and loan basis, but discussions are confidential and outcomes are uncertain.

Q: There is great outcome between Meta and IBM. And it sounds like tech demand in Austin is pretty strong. But do you anticipate any other tech tenants will scale back square footage within your portfolio?

A: Richard Hickson said they don't anticipate any other significant scaling back.

Q: Second follow-up, I wanted to comment – sorry, follow-up on your commentary on the BofA lease in Charlotte. You mentioned some short-term direct leasing you have done with the sub-lessee. I was wondering if you could provide any color as far as how long that term was and if there is any mark to market?

A: Richard Hickson said it was a two-phase extension, mark to market was customary, and didn't move the needle much.