COUSINS PROPERTIES INC Q1 FY2025 earnings call

• Strong first quarter earnings with $0.74 per share in FFO.
• Same-property net operating income increased 2% on a cash basis, with 44 consecutive quarters of positive rent roll-up.
• Leasing remained robust with 539,000 square feet of leases completed and a 3.2% cash rent roll up.
• Portfolio occupancy at 90% at quarter end, up from 88.4% in Q1 2024.
• Market fundamentals improving with existing office supply declining and demand accelerating.
• Strategically focused on driving earnings growth while maintaining a best-in-class balance sheet.
• Redevelopment projects in markets like Charlotte and Phoenix to elevate properties.
• Multifamily leasing velocity accelerating, with projected stabilization moved up to Q1 2026.

In the first quarter, Cousins Properties delivered $0.74 a share in FFO. Same-property net operating income increased 2% on a cash basis. Leasing was strong with 539,000 square feet of leases completed and a 3.2% cash rent roll up. The portfolio was 90% occupied at the end of the first quarter, up from 88.4% in Q1 2024. Revenue contribution is primarily from the office portfolio, with lifestyle office assets being the core segment.

• Increased the midpoint of FFO guidance to $2.79 per share, representing a 3.7% growth rate over last year.
• Guidance assumes refinancing of a $250 million senior note maturing July 6 and no sulfur cuts in 2025.
• Anticipates potential to deploy capital into accretive investment opportunities.

• Tariff discussions creating macro uncertainty, leading to increased volatility in capital markets.
• Concerns over softening economy, weaker demand, and higher construction costs.
• Impact on the office sector, particularly for commodity and older vintage properties.

Q: Talked about how the demand pipeline remains fairly robust. Obviously occupancy within the portfolio is high. even though it's expected to dip throughout the rest of the year, it should continue to grow over the near-term. I guess just given that backdrop in your comments around the supply expectations moving forward, I mean you guys get the sense that you are going to start to see rent spikes eventually across the portfolio? And can you guys talk about sort of the ability to push net effective rents in today's environment?

A: Dylan, it's Colin. Yes, I think it -- in the backdrop for the lifestyle office sector, I think it's a positive one because again, anytime you've got demand improving, at the same time, supply is declining. I think that will ultimately rebalance the market and I think in time, show itself in really positive improvements in the leasing market, both from a volume perspective as well as the underlying lease economics. And so we are starting to see some signs of that tightness or tightening. I'd say that's showing up in some of the concessions and tenant improvement allowances starting to level off. And as those do, I think, in time, we'll begin to see rental rates improve. I think if we see spikes, I think that is going to be determined by how long a period we have with kind of very little to no new supply. And as I've mentioned, earlier today, many times in the past, we do see some shortages of high-quality lifestyle office in certain submarkets. And I think over time, if this delay in any construction starts is takes quite a while, I think you could see some meaningful upside in rents, particularly when you compare that to what new construction rents are, in some cases, it's 50% higher. So I do think there's a long runway for the highest quality lifestyle office rents kind of the existing where they are today and where they need to go to get to new construction levels.

Q: Yeah, thanks, good morning. Richard, I didn't know if you could maybe provide a little bit more color on the pipeline, maybe either by market where you are seeing kind of the most activity? And then maybe by kind of industry? Is it legal, financial services? Is it tech? I'm kind of interested in where if in fact, you're seeing any big tech kind of picking up. Thanks.

A: Sure. Good morning Steve. So I'll start with the industry breakout of our pipeline. It really is remarkably diversified -- but as you drill-down, I would say that there's today and overweight to legal, which we view as encouraging particularly in that industry segment, we are seeing some pent-up demand that's starting to come through the pipeline. But again, it is diversified. We're seeing strong presence from our bread and butter kind of segments of technology and financial services and general professional services. So I feel very good about the diversification of the pipeline. When you look at it by market, it is skewed -- well first all, started strong in every market. So we feel good about demand across the board, but it's skewed toward Atlanta, and Charlotte mainly, it is no coincidence though, that's where most of our availability is. And Phoenix is also screening very strong. But again, we have a lot of availability there as well. One other data point I put out there is that the -- in terms of field type, we are seeing that we're over 70% new and expansion leasing opportunities versus renewals. So a very healthy metric, we think, as well.

Q: Great. Richard, you went through some of the implications of some of the renewal leasing in the quarter, but lease term did come down a bit to 5.5 years. Was there anything that was particularly driving that?

A: Okay. Well, I think it was 6.3% this quarter. And really think Time Warner weighed on that a little bit. They tend just historically to do renewals at more of the kind of 5-year or less time frame. But -- just to give some context, if you look at our pipeline today, late stage, the lease term is pushing nine years. So I think it's just the quarter dynamic that will obviously bounce around over time like it typically does.