Cousins Properties Incorporated Q3 FY2025 earnings call

Market Conditions

• Office fundamentals improving with net absorption reaching post-pandemic high, vacancy declining for the first time in 7 years, and new construction starts at de minimis levels.
• Corporate migration to the Sunbelt reaccelerated, with leasing pipeline robust across all markets and increased interest from West Coast and NYC-based companies.

Leasing Activity

• Completed 40 office leases totaling 551,000 square feet in Q3 with a weighted average lease term of 9.4 years. Year-to-date leasing activity is 1.4 million square feet. Leasing pipeline is healthy and at record high levels.

Acquisitions

• Acquired The Link in Dallas for $218 million, a trophy building fitting into the lifestyle Sunbelt office strategy and expanding presence in Dallas.

Redevelopment Projects

• Notable projects in Charlotte (201 North Tryon and 550 South) and Nashville (Neuhoff) with positive market dynamics and interest from large users.

Financials

• GAAP NOI grew 1.9% and cash NOI grew 0.3% in Q3 compared to last year, though impacted by Bank of America's departure in Charlotte.

Cousins Properties had a strong third quarter. Financially, the team delivered $0.69 per share in FFO. Leasing was robust with 551,000 square feet of leases completed during the quarter, the second highest quarterly volume over the last 3 years. The office portfolio end-of-period lease occupancy was 90% and weighted average occupancy was 88.3%. Second-generation cash rents increased by 4.2% in the third quarter. Year-to-date leasing activity stood at 1.4 million square feet. The company also acquired The Link for $218 million, strategically expanding its presence in Dallas.

Cousins Properties currently anticipates full year 2025 FFO between $2.82 and $2.86 per share with the midpoint of $2.84, which is up $0.02 from the prior quarter. The increase is driven by higher parking income, higher termination fees, lower SOFR, and interest income from the loan to the joint venture partner. The guidance assumes no additional SOFR cuts for the remainder of 2025.

Layoff announcements are weighing on investor sentiment around the office sector, but no meaningful impact on demand has been seen. There are misconceptions that AI is an existential threat to office demand, but return to office remains a more powerful lever for office demand than corporate rightsizing and AI is not yet the existential threat some expect.

Q: Blaine Heck asked about Amazon's layoffs and Sunbelt susceptibility to AI.

A: Michael Connolly stated migration to the Sunbelt is to escape high-tax and high-regulation states, Sunbelt markets have educated workforces, and migration continues. Sunbelt markets are not full of back-office jobs.

Q: Andrew Berger asked about leverage.

A: Gregg Adzema said leverage typically is around 5x net debt to EBITDA, can go up to 6x while maintaining an industry-leading balance sheet.

Q: Brendan Lynch asked about occupancy impact on same-store cash NOI.

A: Gregg Adzema said the Bank of America move-out affects year-over-year comps, but acceleration in same-property performance is expected in the second half of 2026.

Q: Nicholas Thillman asked about dispositions.

A: Jane Hicks said dispositions will be considered when there are exciting acquisition opportunities, monitoring the market and portfolio for such assets.

Q: Steve Sakwa asked about the Neuhoff project.

A: Jane Hicks and Michael Connolly mentioned Oracle's move boosts demand, with follow-on interest from companies working with Oracle.

Q: John Kim asked about cap rates and Dallas acquisition.

A: Michael Connolly said cap rates are likely to compress, focused on growing Dallas presence but chose other opportunities.

Q: Dylan Burzinski asked about RTO tailwind.

A: Michael Connolly said RTO has runway, but the economy will cycle, and lack of new supply provides positive runway for existing lifestyle office buildings in the Sunbelt.