Cousins Properties Incorporated Q2 FY2025 earnings call

• Commemorated the legacy of Tom Cousins, who founded the company in 1958. - Highlighted strong second quarter performance with FFO of $0.70 per share, above consensus. - Leasing was strong with 334,000 sq ft of leases, 80% new/expansion. Cash rents on second-gen space up 10.9% qtrly and 5.4% YTD. - Market observations: Sun Belt lifestyle office market has healthy leasing demand, declining supply, net absorption positive. - Strategic priorities: Grow earnings, cash flow, NAV; upgrade lifestyle portfolio; maintain fortress balance sheet. - Acquired The Link in Uptown Dallas, which is 94% leased with strong tenant base. - Operations team: Office portfolio end-of-period lease and weighted average occupancy 91.6% and 89.1% respectively. Lease economics strong with second-generation cash rents up 10.9%, average net rent $40.95. Market performance in various cities: Austin, Atlanta, Charlotte, Phoenix, Tampa, Nashville with positive trends in leasing and occupancy.

In the second quarter, Cousins Properties had strong results. Earnings per FFO were $0.70, which was $0.01 above consensus. Same-property net operating income increased 1.2% on a cash basis and 1.6% year-to-date. Leasing was robust with 334,000 square feet of leases completed, 80% of which were new or expansion leases. Cash rents on second-generation space rose 10.9% in the quarter and 5.4% year-to-date. The company acquired The Link, a trophy lifestyle office property in Uptown Dallas, funded by excess proceeds from note offering and potential asset dispositions.

• Raised midpoint of full-year 2025 FFO guidance to $2.82 per share, up $0.03 from last quarter and 4.8% over 2024 results. - Driven by accretion from The Link acquisition, higher parking income, and better execution on the unsecured note issued in June. - Guidance assumes no SOFR cuts in 2025. - Funding The Link acquisition with excess proceeds from note offering, proceeds from share settlement, or potential asset sales. Assumes settlement of approximately $2.3 million of previously issued shares, but may use asset sales instead.

• Macro uncertainties including tariffs and interest rates. - Potential impacts on the office market, such as uncertainties in demand and supply dynamics. - Risks related to asset dispositions, including the uncertainty of market interest in lower occupancy and higher CapEx office assets, and the potential impact on cash cap rates.

Q: Could you give more context around the underwriting for The Link's 6.7% cash yield?

A: Colin Connolly said they're thrilled to be in Uptown Dallas, with rents significantly below market, a strong rent roll, and little CapEx needs.

Q: Can you talk about noncore dispositions?

A: Michael Colin Connolly said dispositions are driven by new investment opportunities, prioritizing lower occupancy and higher CapEx office assets, possibly including noncore land.

Q: What about the Neuhoff project in Nashville?

A: Jane Kennedy Hicks said the apartments are leasing up well, food and beverage options are well-received, and there's a pickup in office tours and RFP requests.

Q: Talk about leasing pipeline and tenant trends?

A: Richard Hickson said the leasing pipeline is very healthy, with broad market strength, financial services and legal being heavy contributors, and new-to-market requirements in various cities.

Q: Thoughts on capital allocation and mezzanine financing?

A: Michael Colin Connolly said mezzanine financing isn't core, but they explore creative opportunities collateralized by lifestyle office, sizing them appropriately to avoid long-term earnings headwinds