Cousins Properties Incorporated Q1 FY2026 earnings call

Leasing Activity

• Completed 932,000 square feet of leases during the quarter, one of the highest quarterly volumes in company history. Cash rent roll - up on second - generation leasing was 15.2% for 48 consecutive quarters. Significant leasing wins included a large renewal in Austin, new leases with Oracle in Nashville and KPMG in Atlanta.

Market Trends

• Most major companies phasing out remote work, e.g., Fidelity's five - day - a - week office mandate. Flight to quality: customers prioritizing high - quality, well - amortized, well - located buildings. Sunbelt migration reaccelerated due to tax proposals in NY, CA, WA, with companies like Starbucks, Apollo, Capital Group relocating. Record high office conversions and low new development starts leading to shrinking inventory of premier lifestyle office space.

Strategy

• Focused on driving sustainable earnings growth, maintaining best - in - class balance sheet, enhancing Sunbelt lifestyle office portfolio. Increased occupancy to 88.9% across portfolio. Closed on acquisition of 300 South Tryon in Charlotte. Repurchased 3.9 million shares. Sold Harborview Plaza in Tampa and entered into agreement to sell 111 Congress in Austin.

Operations

• Total office portfolio end - of - period leased was 91.8% with weighted average occupancy 88.9%. Leasing activity in first quarter was record setting with 49 office leases totaling 932,000 square feet, weighted average lease term 6.6 years. Average net rent $44.54, average net effective rent $32.28. Second - generation cash rents increased 15.2% in first quarter. Leasing pipeline remained healthy with 1 million square feet of leases either signed or in negotiation.

Investment Activity

• Closed on off - market acquisition of 300 South Tryon in Charlotte for $317.5 million. Sold Harborview Plaza in Tampa for $39.5 million. Under contract to sell 111 Congress in Austin and 303 Tremont land parcel in Charlotte. Own Newhoff in 50 - 50 joint venture, and Newhoff Phase 2 added to land inventory.

In the first quarter, Cousins Properties had FFO of 73 cents per share. They increased the midpoint of FFO guidance for 2026 to $2.94 per share, a 3.5% growth over 2025. Leasing was robust with 932,000 square feet of leases completed, and second - generation cash rent roll - up was 15.2% for 48 consecutive quarters. Occupancy across the portfolio was 88.9%. The office portfolio end - of - period leased was 91.8% with weighted average occupancy 88.9%. Average net rent this quarter was $44.54, average net effective rent was $32.28. Atlanta had strong leasing activity with 2.3 million square feet of leases signed, sub - lease availability at lowest since 2021, and average asking rents had largest quarterly increase in 2.5 years. Austin tenant demand increased 30% year over year, signed 339,000 square feet of leases. Charlotte market level leasing activity increased 74% year over year, signed 181,000 square feet of leases. Dallas market recorded 3.6 million square feet of leasing activity, portfolio was 98.1% leased. Newhoff project in Nashville had office component 84.3% leased, apartment component stabilized at 92.6%.

FFO Guidance

• Increased the midpoint of FFO guidance for 2026 to $2.94 per share from prior midpoint of $2.92, representing 3.5% growth over 2025. The guidance assumes the 3.9 million share repurchase executed in the first quarter is funded with proceeds from settlements of 2.9 million shares previously issued on a forward basis, and assumes the 300 South Tryon acquisition is funded with proceeds from Harborview, 111 Congress, and 303 Tremont. Guidance does not include additional property acquisitions, dispositions, or development starts in 2026.

Leasing and Occupancy

• Goal to reach 90% occupancy by year - end 2026, with relatively modest amount of new leasing needed incrementally to achieve this.

Q: Colin, you commented on the leasing pipeline and the earnings release, and again here. Can you and or maybe Richard give any more detail on the size of the pipeline today versus maybe a year or 18 months ago and versus your historical average and maybe give a little bit more color on any trends you're seeing with respect to tenant size or industry? Are you seeing any specific segments or market strengthening or weakening?

A: This is Richard. The late - stage pipeline is about 2X the size of this time last year. The number of prospects in the pipeline overall has increased about 15% since last quarter. Mix of industries is roughly the same, technology slightly ahead of financial services. Activity is broad - based across markets like Atlanta, Phoenix, Nashville, Austin. Colin adds that leasing activity is for front - of - house revenue - producing employees for dynamic companies including AI companies.

Q: You all mentioned that asking rents had grown the most this quarter in two and a half years. I was hoping you could quantify that increase. And also, you know, can you comment on what you think is a reasonable forecast or range for net effective rent growth in your segment, you know, class A, A plus or trophy within your markets and whether there are any standout markets on the positive end of that metric or any that could be more muted?

A: This is Richard. In Atlanta, Buckhead Plaza rents grew 20% in last year or so. In Dallas uptown, rents grew about 40% since 2021, new product and top of market asking rents $80 net. In Charlotte, rent growth during leasing process was roughly 10%. In Phoenix, Hayden Ferry rents grew about 20% since 2024. Confident in continuing to grow net effective rents in future quarters but hard to prognosticate exactly.

Q: Can you talk a little bit more about the optionality you have for funding the share repurchases? I don't believe you've issued the forward shares yet. So can you talk about the strategic and economic merits for stock issuance versus additional sales? Are there certain cap rates or other factors that would make you lean towards sales instead of the forward equity?

A: It's Greg. We've issued the forward shares but haven't settled them. Have flexibility to settle those shares through year - end 26. Modeling assumes settlement of forward shares for guidance. Always exploring market and liquidity for non - core assets. How to pay for share repurchase will depend on clarity on non - core asset efforts. Trying to drive accretion on leverage neutral basis.

Q: In light of the really good leasing volumes, I just wanted to ask about your expectations for like second generation capex spending going forward. I know you don't necessarily guide FAD, but I'm just trying to understand and square FFO versus FAD growth kind of like in the near term future.

A: Second - gen CapEx can be super lumpy. Tied to leasing, elevated a little bit over last few quarters because of much leasing. For 2026, could be a little higher than last couple years due to leasing, but once portfolio stabilizes, will decline to historic levels.

Q: You previously talked about your kind of like year - end occupancy target for 2026, now being a quarter in and obviously with leasing being very strong, the pipeline being very large. Just wanted to ask how you feel about kind of like the occupancy trends kind of by like year - end 2026 and how bullish it makes you kind of going forward into 27.

A: This is Richard. Relatively modest amount of new leasing needed incrementally to reach year - end 90% occupancy goal, confident it's achievable. Intention is to drive portfolio back to low to mid - 90% stabilized levels over medium term.

Q: You have a million square foot pipeline or already signed in the second quarter. And that's versus roughly 800,000 square feet expiring this year. You're also selling 111 Congress, which is a little bit under leased versus your portfolio. So I'm just wondering, where do you think occupancy or leased rates could go to either by year end or maybe over the next 12 months?

A: As Richard just outlined, goal for end of 2026 is 90% occupancy, achievable. Intention is to drive portfolio back to low to mid - 90% stabilized levels over medium term. Underlying demand is there and robust due to return to office, flight to quality, and Sunbelt migration.

Q: The large renewal you had in Austin, it sounds like that was with Amazon, just based on your commentary. But I'm wondering if you could share any insights that you have on your largest tenant, just given they talked about reducing a lot of desks, almost 14 million square feet of office space globally. And is there anything we should read in the renewal term? It was a little bit lower at 4.7 years versus the new leases signed this quarter.

A: It's Colin. Can't be overly specific due to confidentiality. Amazon grew headcount by almost 700,000 people over five years of pandemic, viewed downsizing as to create efficiency, requiring workforce back in office five days. Large renewal in Austin had no reduction in space, places them well into 2030s, positive signal of confidence in the domain.

Q: You guys have clearly defined the type of assets you want to own. And just trying to get a sense of the overall scope of maybe just looking at your market share within your individual submarkets, what percentage of that trophy lifestyle office does Cousin own versus the opportunity set longer term? Maybe level setting and start with that.

A: It would vary market by market. Still think there's ample opportunity with trophy lifestyle buildings, some buildings can be bought and renovated to convert into lifestyle office. Believe there'll be emerging new development opportunity.

Q: Kennedy, you mentioned a little bit of the flurry of this potential Mez investments. But in the past, you guys have also highlighted with the intention of owning those assets longer term. So we look at some of the Mez investments. They've all been paid back. We've seen some of those transact. Maybe just give us a sense of how core pricing has moved. I mean, the Dallas St. Ann Court property sold. the Nashville properties in the market. Just give us a sense of what you guys were initially underwriting with that Mez investment to basically where they're transacting, how much of that pricing has moved for core product.

A: All of the Mez pieces were low to mid double digits and cut from existing senior loans. Pricing for core assets is still low seven caps, and Mez investments were low to mid double digits, still seeing pricing hold generally for core assets on acquisition side.

Q: Richard, on the 450,000 square feet of new and expansion leases, does any of that include redevelopment projects? And then maybe as we also think of just larger chunks of portfolio and addressing that, this is a little bit of ways out, but the NCR building, Is there any opportunity there, similar to the situation you guys did with Meta and IBM, look at opportunities there as well?

A: There's a small amount of redevelopment activity in the 450,000 square feet. With NCR, continue to have good dialogue, open to exploring creative strategies, view it as a great opportunity in future, quality of building and location will win the day ultimately.

Q: You've clearly defined the type of assets you want to own. And just trying to get a sense of the overall scope of maybe just looking at your market share within your individual submarkets, what percentage of that trophy lifestyle office does Cousin own versus the opportunity set longer term? Maybe level setting and start with that.

A: It would vary market by market. Still think there's ample opportunity with trophy lifestyle buildings, some buildings can be bought and renovated to convert into lifestyle office. Believe there'll be emerging new development opportunity.

Q: Have you looked at your portfolio? Are there any stats you can share in terms of what percent of the tenancy is back office? I guess what percent is SaaS? And any other statistics that give us a flavor of what you described with the pipeline?

A: Characterize percentage of back office in Cousins' portfolio as probably among the lowest in office sector, in single digits. Narrative about Sunbelt being back office is dated, these cities are attracting best and brightest with vibrant job markets.

Q: As you go back to sort of the stabilized mid - 90s, low to mid - 90s, you now have a pool of assets, perhaps, you know, less burden in terms of capex. So seeming sort of cash flow recovers over the next two, three years with the occupancy. Like, where are you comfortable with, you know, with the payout ratio, dividend payout?

A: Historically, payout ratio has lingered in low to mid 70% to FAD. Comfortable with it being right around there in immediate future. Board makes decision on dividend, historically paid out below to mid - 70%, and think it'll be there in immediate future, beyond that will be bigger strategic discussion with board.

Q: Colin, in your opening remarks, you talked about how companies that are deploying AI are prioritizing collaboration. Can you give us a sense of how much space per employee, tenant in your portfolio are using today, and whether or not you think this could potentially rise over time as companies invest more in collaborative space?

A: Over time, densities within portfolio today are exactly where they were in 2019. Not seeing immediate shifts in how companies are using space as AI rolls out, very active in leasing with major technology, financial services, and legal companies.

Q: Do you have a general sense of how your portfolio's in - place rents compare to market rents today? And ultimately, whether or not we should expect to continue seeing these double - digit increases on a cash basis, just given the demand versus supply dynamics that you've been talking about?

A: It's Colin. Portfolio today is still below market as market rates rise. Confident in continuing to drive rents, hopeful to announce 49th consecutive quarter of positive cash rent roll - up in future.

Q: Brandon Lynch from Barclays asked about timeline on signed but not yet commenced leases to come online or convert to cash. Richard responded that at this point, what we have signed and not yet commenced, relative to 2026, has late third quarter timing on a weighted average basis.

Q: Kennedy, asked about competition on the transaction front. Kennedy responded that transactions are continuing to pick up, don't see a lot of competition in true trophy space north of $250 million, but encouraged by private capital coming back, new entrants, and works to our advantage as a seller and buyer.