Good morning, ladies and gentlemen, and welcome to the Cousins Properties Third Quarter Conference Call. [Operator Instructions] The call is being recorded on Friday, October 25, 2024. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead..

Thank you. Good morning, and welcome to Cousins Properties third quarter earnings conference call.

With me today are Colin Connolly, our President and Chief Executive Officer; Richard Hickson, our Executive Vice President of Operations; Kennedy Hicks, our Executive Vice President and Chief Investment Officer; and Gregg Adzema, our Chief Financial Officer.

The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements.

If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of our website, cousins.com.

Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors, including the risk factors set forth in our annual report on Form 10-K and our other SEC filings.

The company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday and a detailed discussion of some potential risks is contained in our filings with the SEC. With that, I’ll turn the call over to Colin Connolly..

Invest in properties that already are or can be positioned into lifestyle office in our target Sun Belt markets, near-term accretion remains a priority. While there are signs of falling, the private capital markets remain challenging for office. Asset-level debt and equity is limited and expensive.

Many private equity investors have legacy issues in their portfolios and are on the sidelines. Conversely, the public markets show meaningful signs of improvement. Liquidity has grown in the unsecured debt market and spreads have tightened. Office reached share prices have begun to rebound.

This creates a compelling investment environment for Cousins as private and public market valuations finally converge. In conclusion, the office market remains highly bifurcated. There is little to no leasing demand or capital for commodity and older vintage properties. Values for these properties will reset so they can be reimagined or demolished.

At the same time, the lifestyle office market continues to improve. New construction is at historic lows, while leasing demand is picking up. The market is rebalancing and a shortage of premium space is not far off. It is Econ101. Cousins’ uniquely positioned for this environment. We’ve built the company to thrive during all economic cycles.

And today, we are in a highly advantageous position. We are in growing and vibrant Sun Belt markets, Bank of America ranks our portfolio as the highest quality among all office REITs, our leverage is the lowest across the sector. The pricing on our unsecured bonds trade at the tightest spreads to treasuries among all traditional office companies.

In short, we have great access to capital and are excited about the future for Cousins. Before turning the call over to Richard, I want to thank our talented Cousins employees for the foundation of our success. They are dedicated, hard-working and provide excellent service to our customers.

Richard?.

Thanks, Colin. Good morning. Our operations team continues to deliver outstanding results in 2024. In the third quarter, our total office portfolio end-of-period lease and weighted average occupancy percentages were 91% and 88.4% respectively. Both metrics are essentially in line with last quarter. Some comments on occupancy.

To start, this quarter’s occupancy reflects the full impact of WeWork’s giveback space at 725 Ponce in Atlanta. We also had two portfolio changes this quarter. First, and as I outlined last quarter, Domain 4 in Austin brought out of our operating portfolio upon Accruent’s original lease expiration in August.

Second, our recent acquisition, Proscenium in Midtown Atlanta, was added to the operating portfolio at our 20% share.

With these portfolio changes, only 1.8% of our total square footage expiring in 2024 and about 290,000 square feet of signed new and expansion leases set to commence through year’s end, we expect occupancy to trend modestly higher in the fourth quarter.

Looking to 2025, the long anticipated move-outs of One Trust in Atlanta, Bank of America in Charlotte and a handful of other smaller ones should result in a downdraft in occupancy and temporary trough through the third quarter.

However, with otherwise low expirations and continued strong leasing demand, we expect to begin building back occupancy towards the end of 2025 and beyond. This was an exceptional quarter for Cousins from a leasing perspective.

During the third quarter, our team completed 37 office leases, totaling a very strong 763,000 square feet with an weighted average term of 7.7 years. This quarter’s activity represents our highest volume since the second quarter of 2019 and was also one of our highest quarterly totals relative to our portfolio size.

I also want to note that as of today, we have signed nearly the same volume of leasing year-to-date in 2024 than we signed in all of 2023. It’s also encouraging that 611,000 square feet of our completed leases this quarter were new and expansion leases, representing 80% of our activity.

Included in this quarter’s activity was our recently announced 320,000 square foot full building lease with IBM at Domain 12 in Austin. IBM will officially assume the lease for Meta Platforms as of January 1, 2026, and the lease was also extended from 2031 through 2040. I will speak to this lease more later.

Regarding lease economics, second-generation cash rents increased again in the third quarter by a solid 7.2%. Like last quarter, the Atlanta portfolio was the largest contributor with Austin and Tampa also seeing solid rent roll-ups. Average net rent this quarter came in at a record-breaking $45.21, eclipsing our next highest quarter by over $6.

This quarter, average leasing concessions, the sum of free rent and tenant improvements, were $7.73, a decrease relative to the last few quarters. As a result, our average net effective rent this quarter also broke a company record at $34.57. At the market level, our Neuhoff development in Nashville continues to show good momentum.

This quarter, the team completed a 22,000 square foot office lease with Boston Consulting Group, taking the – portion of the project to 44% leased. We are also in lease negotiations with 3 more office users totaling another 25,000 square feet, and these would take the commercial portion of the project to 50% leased.

As a reminder, multifamily leasing at Neuhoff began in the second quarter. I’m pleased to say that multifamily leasing has accelerated as we sit at 25% leased today compared to 25 – 21% at quarter end. This is impressive given that we are in a seasonally slower time for apartment leasing.

In Atlanta, high-quality space continues to see the most demand reflected in positive absorption across Class A assets this quarter. Class A office vacancy also dropped this quarter for the first time since 2022 for JLL. Large transactions are also returning to the market with 7 leases signed in Atlanta this quarter of 75,000 square feet or greater.

In our Atlanta portfolio, we signed 104,000 square feet of leases and 68% were new and expansion leases. Austin is also seeing a return of large block leasing activity with 2 of the largest new leases of the year signed in the third quarter.

JLL also recently noted that quarterly leasing activity in the market has increased every quarter this year, with this quarter surpassing 1.5 million square feet for the first time since mid-2022. Our Austin team signed 399,000 square feet of leases this quarter, rolling up second-generation cash rents by 8%.

That includes our new lease with IBM at Domain 12. We are incredibly excited about the IBM lease, not just because of its size, but for several other important reasons as well. First, we view this lease as a strong signal that the technology sector will continue to be highly invested in the Austin market and particularly the domain over the long term.

Second, as IBM takes occupancy, we believe the energy in the core of the domain will be better than ever. Third, the extended lease term that came with this transaction significantly derisked the exploration profile of our domain portfolio.

And last, this lease is a great example of the power of our platform and the types of creative solutions Cousins can provide customers regardless of the market.

In Charlotte, our team remains focused on finalizing plans for the material redevelopment of Fifth Third Center and Uptown where, as you know, Bank of America is set to move out of 317,000 square feet at the end of July 2025.

I’m pleased to report that during the quarter, we extended an existing 49,000 square foot sub-lessee of Bank of America on a short-term direct basis, which incrementally ladders 2 full floors of that upcoming expiration.

We view the sub-lessee’s decision to remain at the property for longer as a vote of confidence in the quality of the customer experience of the building. In Phoenix, CBRE noted that Class A office posted 69,000 square feet of positive net absorption in the quarter.

In our portfolio, Hayden Ferry has experienced unprecedented tour activity with August seen 3x the monthly average. We attribute this interest to the transformational redevelopment of this project, which is nearly complete.

This quarter, our Phoenix team signed an impressive 171,000 square feet of leases, including a new lease with a 53,000 square foot customer that will occupy the first two floors of Hayden Ferry One in the second half 2025. We also signed a 52,000 square foot renewal and 23,000 square foot expansion of a technology company at Hayden Ferry 2.

This transaction is particularly notable and that the need for this customer to expand was driven by an initiative to bring employees back to the office. According to JLL, the Tampa office market also remained strong and stable, recording 2.3 million square feet of leasing activity year-to-date.

Further, sublease space decreased by nearly 600,000 square feet in the quarter. This quarter, our Tampa portfolio occupancy increased to 92%, and the team signed a total of 6 leases and rolled up second-generation cash rents by 2.6%. I’ll wrap up by touching on our leasing pipeline.

Recall that subsequent to quarter – second quarter end, our late-stage leasing pipeline strengthened – One driver of that was our pending lease with IBM. However, even with that lease now signed, our late-stage pipeline remains at a very healthy level.

Our early-stage pipeline is even more encouraging, though recall, it takes time for that to translate to signed activity. In short, we remain optimistic about what lies ahead. As always thank you to our hardworking and talented operations team for positioning us so well. I do want to extend a special thank you to our Tampa team.

They are doing an incredible job with the recent hurricanes, not just during and after the storms, but as important leading up to them. Their proactive and professional approach to preparedness and support of one another was second to none and a big reason our properties performed so well with only minor damage.

Kennedy?.

Thanks, Richard. Good morning, everyone. The acceleration in our leasing activity is coinciding with an acceleration of investment activity. I’m pleased to discuss two recently completed transactions, transactions that align with our core strategy, to thoughtfully and accretively invest in Sun Belt lifestyle office environment.

First, subsequent to quarter end, we acquired a mortgage loan that is secured by Saint Ann Court, a 320,000 square foot Class A office assets built in 2009 in the dynamic Uptown Dallas submarket. The $138 million loan was acquired at par, a basis of $431 per square foot.

The loan has an initial maturity of December 7, 2024, and an interest rate of SOFR plus 366 basis points. At the time of the loan acquisition, the asset was 98% leased.

As you are aware, we also recently acquired two mezzanine loans as a way to allocate capital and earn an attractive risk-adjusted return during the time period in which the office sector has come to reprice and a bid ask often remains between buyers and sellers. This is a continuation of that bridge.

In addition, in August, we acquired Proscenium, a 525,000 square foot Class A office building that is extremely well located at the intersection of Peachtree and 14th Street in the heart of Midtown Atlanta. We acquired the 2001 vintage building in an 80-20 joint venture with Town Lane, for $83 million or $158 per square foot on an all-cash basis.

Cousins owns the 20% interest and will provide property management, leasing and redevelopment services for the partnership. We’re excited about this transaction for several reasons. First, the initial basis of $158 per square foot, an opportunistic return profile is very compelling.

This is reflective of the repricing that has occurred, particularly for value-add profile assets. The building has historically averaged above 90% leased, but was 74% leased at the time of acquisition. With some long-known move-outs, occupancy is projected to drop to approximately 50% over the next few quarters.

As part of our acquisition, we are planning significant capital upgrades to modernize and reposition the building. These redevelopment efforts will begin in early 2025.

This is a similar strategy that Cousins has successfully executed at several other properties recently, including the neighboring Promenade Campus, and we’re encouraged by early leasing interest in the building. All in, we anticipate that our stabilized basis will be less than half of today’s replacement cost, a significant competitive advantage.

Second, we are excited to have executed this transaction with a fantastic partner in Town Lane. The joint venture allows us to participate in an attractive, opportunistic investment in our backyard and leverage our strong development in Atlanta team.

Given the lease up and repositioning efforts needed, it will take time for the investment to materialize into meaningful accretion. Therefore, partnering with Town Lane on this transaction allows us to create long-term value at the property level while maintaining significant action capacity for other transactions that offer more near-term accretion.

Finally, we remain optimistic that this is just the beginning of an interesting transaction cycle for Cousins, one where we intend to press our competitive advantage. As Colin mentioned, asset-level debt for office remains challenging to obtain and expenses.

In the case of Proscenium, our ability to move quickly and close all cash as a highly regarded JV partner gave us a significant advantage over other interested parties. We continue to evaluate a variety of acquisitions and structured investments across our Sun Belt markets.

Our guiding criteria is underlying assets that are or can be repositioned to be trophy lifestyle environments. We have ample capacity to buy our assets on our own, and we’ll also evaluate investment opportunities with like-minded joint venture partners where it makes sense. I will turn the call over to Gregg..

Thanks, Kennedy. I’ll begin my remarks by providing a brief overview of our results, spending a few minutes on our same property performance. Then moving on to our capital markets and development activity before discussing our balance sheet and closing my remarks with an update to our ‘24 earnings guidance.

Overall, as Colin stated upfront, our third quarter results were outstanding. Second-generation cash leasing spreads were positive for the 42nd straight quarter, leasing velocity was excellent and same property year-over-year cash NOI increased. It was also a very clean quarter. There were no significant, unusual or nonrecurring items of note.

Focusing on same-property performance for a moment, GAAP NOI grew 4.2% and cash NOI grew 4.4% during the third quarter compared to last year.

This continues a string of positive same property numbers that began in early 2022 with the most recent quarterly cash increases largely driven by occupancy gains at our San Jacinto building in Austin as well as our 100 Mill and Tempe Gateway buildings in Phoenix.

I also wanted to take a moment to point out the lumpiness that can sometimes run through our quarterly same-property expense numbers, oftentimes driven by property taxes. Property tax true-ups, as we receive actual assessments from the taxing authorities, can push the quarterly numbers around quite a bit.

So it’s always best to use longer-term time frames when looking at expense numbers. Moving on to our capital markets activity. After receiving our investment-grade credit ratings from Moody’s and S&P in the second quarter, we completed an inaugural unsecured bond issuance in the third quarter.

In mid-August, we issued $500 million of 5 7/8% notes due 2034. Investor demand was strong and it was widespread with over 100 investors submitting orders for $3 billion. Subsequent to closing the offering, pricing on our bonds in the secondary markets have improved significantly.

And as Colin said earlier, our bonds now trade at the tightest spread to treasuries among all traditional office REITs, providing us with a critical cost of capital advantage. Turning to our development efforts. The current pipeline is comprised of 50% interest in Neuhoff in Nashville and 100% of Domain 9 in Austin.

Our share of the remaining estimated development costs is approximately $50 million, which will be funded by a combination of our Neuhoff construction loan and our operating cash flow. We provided the estimated stabilization of the commercial space at Neuhoff from the fourth quarter of 2025 to the second quarter of 2026.

Construction is on schedule and leasing remains generally in line with our original underwriting. However, customer move-in dates are a bit later than we had originally forecasted. Looking at our balance sheet, net debt to EBITDA is an industry-leading 5.1x, and our liquidity position is excellent.

We ended the quarter with nothing outstanding on our $1 billion credit facility and over $76 million in cash and cash equivalents. We have ample balance sheet capacity as we explore the attractive transaction market Colin and Kennedy discussed earlier. I’ll close by updating our ‘24 earnings guidance.

We currently anticipate full year 2024 FFO between $2.66 and $2.70 per share with a midpoint of $2.68. This is up $0.025 from the prior guidance we provided in July and up $0.06 from our original guidance.

The most recent increase is driven by lower short-term interest rates, lower real estate taxes as we realized favorable assessment outcomes and new investment activity. Our earnings guidance remains clean – speculative property acquisitions, property dispositions, development starts or capital markets transactions.

If any of these do take place, we’ll update our earnings guidance accordingly. Our guidance assumes the mezzanine loan on the Radius property in Nashville that we acquired during the second quarter is paid off at par prior to year-end.

The loan has a maturity date of June 2025, however, the borrower is currently pursuing an early refinancing, and we assume they will be successful with a floating rate loan and open to prepayment with no penalty or diseases.

Our guidance also assumes the whole loan we just acquired in the Saint Ann Court property in Dallas paid off at par on the maturity date of December 7th. Bottom line, our third quarter results are excellent, and we are increasing earnings guidance for the third straight quarter.

I believe we are one of the few office REITs to forecast positive FFO growth in 2024. Our best-in-class leverage and liquidity position remains intact, office fundamentals continue to improve with accelerating leasing activity and declining new supply, and we continue to deploy capital into compelling and accretive investment opportunities.

We are in the early innings of what is often a very productive part of the cycle for office owners and we enter it with a significant cost of capital advantage. We look forward to reporting our progress in the coming quarters. With that, I’ll turn the call back over to the operator..

Thank you. [Operator Instructions] Your first question comes from Jeff Spector with Bank of America. Your line is now open..

Great. Good morning and congratulations on the quarter. First question, if we can focus on your comments around optimism around the transaction cycle.

Are you planning to continue to leverage your current footprint and teams? Do you see yourself looking into other Sun Belt markets? If you can talk about that a little bit more?.

Great. Good morning, Jeff. I would say that we are very constructive on the investment environment today for lifestyle office and we do remain very focused on the Sun Belt footprint that we operate in today. We’re always evaluating new markets within the Sun Belt.

I’d mentioned Raleigh, Durham, Metro and South Florida as markets that we continue to evaluate. But I really wouldn’t characterize them as new markets. We’ve been invested in both of those in the past. And so we’ll continue to look at those.

I would say there’s nothing imminent in those markets as today, we really don’t feel opportunity-constrained in the markets that we’ve got a presence in today and in boots on the ground..

Thank you. And then my second question, I know you’ve talked – you’ve compared a couple of times to 2019, which I assume is purposeful. So in terms of occupancy levels, can you provide any more color there? I know you talked about how ‘25 may play out. But I guess, big picture, where do you – you’ve compared again this quarter to 2019.

2019 was a very strong year. Can you talk a little bit more about that and maybe even tie in thoughts around concessions and free rent? Thank you..

Sure, Jeff, it’s Colin again. I think we continue to refer to 2019 in that in our performance today, if you were to strip out the year 2024 and compare our results to prepandemic of 2019 as it relates to leasing volumes, net effective rents, et cetera, it’s kind of at or better.

And so at Cousins, we’re spending less time talking about return to office and more time about returning to normal. And our customers are back more in force, the leasing demand is running parallel with that.

And so we believe that our occupancy today that was really less COVID related and some specific discrete move-outs that we’ve dealt with over the last couple of years and one next year. But we believe we can return this portfolio to normalize levels of occupancy, and that’s certainly north of 90%.

That might take us a year or two to reach those goals and – but the quality of the portfolio that we own today, the lifestyle portfolio that Bank of America, we appreciate ranking, number one, across all REITs, it certainly has the capacity to do that. And I think broadly speaking, the office market as a whole is going to stabilize.

You’re going to see lower quality properties candidly disappear and repurposed while the highest quality buildings fill back-up, and that process is certainly underway today. And so that gives us a lot of optimism. And again, I think the performance of the company in 2024 largely mirrors or exceeds what we were – where we were in 2019..

Thank you..

Your next question comes from Blaine Heck with Wells Fargo. Your line is now open..

Great. Thanks. Good morning. Can you talk a little bit more about the Saint Ann Court mortgage acquisition? It’s got a maturity date that’s right around the corner. I know what Gregg just said, it’s in guidance.

But can you run us through any of the potential alternative scenarios and whether you think there’s much probability that’s something other than being paid back at maturity happens?.

Yeah. Well, Blaine, let me just, again, step back again and strategically kind of highlight how we’re looking at the market today, which, again, I have mentioned how constructive we are on lifestyle office for the obvious supply and demand reasons.

At Cousins, we have – while we certainly have an equity bias, we have a list of target buildings in our markets that we think are consistent with our lifestyle office criteria.

And as we evaluate those buildings in this environment, we’re willing to look across the capital structure so that we invest at the appropriate basis and with compelling risk-adjusted returns. And so over the course of 2024, we’ve acquired 2 mezzanine loans.

Now, one whole loan, we have done a joint venture acquisition and we’ll continue to look at a wide spectrum of opportunities. You noted in the particular Saint Ann Court loan that, does mature in December of this year. I’d say it’s still way too early to speculate on that.

But on the mezz and whole loans, our expectation is that we’ll ultimately be paid off at maturity. However, those outcomes are still uncertain. And I think ultimately, if the borrower does not pay us off, we’ll certainly assess our rights and remedies and be prepared to take appropriate action.

We’re highly comfortable in the quality of the collateral and our loan basis. But I think it’s just too early to speculate and I can’t comment on any specific conversations beyond that today..

Okay. That’s really helpful, Colin.

And maybe just sticking with you here, I mean, as you guys kind of first made the decision coming out of the pandemic to really gather up dry powder for investment and commented on your intention to find ways to invest in the dislocated market, it seems as though kind of everything was on the table, including large portfolio or even entity-level transactions, which Cousins has done in the past.

Is that still the case? Could we see anything – any kind of large transactions, portfolio transactions, entity level transactions or do you think in this environment, it’s probably more likely to be one-off smaller deals?.

Yeah. Look, we’re – again, we’re going to continue to be creative at Cousins in terms of how we access and complete transactions, again, focused on the appropriate basis and compelling risk-adjusted and accretive returns, and we’re going to be flexible in how we invest.

And I think certainly, in the early part of the cycle, as Kennedy mentioned, with bid-ask spreads, you’ve got to be a bit more creative. I do think that we are starting to see private market values and public market values converge. And so we do think that’s going to open up an opportunity to consolidate assets more traditional property acquisitions.

And that’s certainly an opportunity to take a bespoke approach and really curate and select the right assets to add to the portfolio, where, again, we’ll always evaluate any and all opportunities, but I do think probably the near-term opportunity that’s going to open up for us is in the property acquisition arena..

Okay, great. Thanks, Colin..

Thanks, Blaine..

Your next question comes from Anthony Paolone with JPMorgan. Your line is now open..

Yeah. Thanks.

I guess, first, just with the discussion about the desirability of just the best assets and you having a decent amount of activity there, is there any prospect of build-to-suits or activating any of the development land in the near term?.

Sure, Tony. We are starting to see more – or having more discussions with customers about their future real estate needs that could include build-to-suits and/or other types of development.

And I think in today’s current capital markets, the challenge is with construction costs and the cost of capital being able to find a balance and the appropriate return and rent that works for existing customers. So I do think you’re going to see similar to the situation with IBM, where existing buildings are going to fill up first.

But I don’t think development is that far behind. And I do think it’s, again, very encouraging. Some of the conversations that we’re having with customers who are thinking longer term, very specific about their space needs. And I think you’ll see development in very select submarkets like the Domain as an example, be really not that far off..

Okay. Thanks.

And then just second one, as you think about 2025, can you maybe talk about what the mark-to-market looks like right now on the leases coming due and just how you think that might look?.

Sure, Tony. It’s, yeah. Can’t comment specifically on 2025. That will ultimately be dictated by which specific deals are completed, what renewals we do, what early renewals that we do. But again, I think we remain confident that we have an opportunity to consistently roll up rents. And again, to what degree, will vary quarter-to-quarter.

But I think this marked our 42nd straight quarter of roll-ups, and we’re optimistic that we can continue that into 2025..

Okay. Thank you..

Your next question comes from John Kim with BMO Capital Markets. Your line is now open..

Good morning. There was kind of – I think Richard made on the Austin market and two large leases signed in the third quarter. We all know about the IBM lease, but I was wondering who that second lease was with? And if you could just discuss the health of tech leasing in the market, do you know that NVIDIA is looking for space.

I am wondering if there is other large tech leases out there currently in the market..

Sure. So, the second lease is PayPal, who signed a significant expansion at Domain Tower 2, which is on the fringe, just outside of the core of the Domain, so it kind of dovetails with the second part of your question regarding tech sector activity.

I think that’s, again, an example of a technology company making a long-term decision and to increase their presence. And we know of a number of other technology companies that we already do business with and some others that we don’t currently do business with that are searching in the Austin market specifically.

So, we feel good about the amount of activity that’s starting to come to fruition..

Okay.

And then following-up on the Saint Ann Court mortgage debt, have you been in contact with the owner, Hardwood? And can you discuss where you think they are at as far as potentially opening up the relationship with you?.

Sure, John. As I mentioned earlier, we are – we need to maintain confidentiality relative to any discussions we have with our borrowers across any of the loans that we own. And again, I think it’s just too early to speculate.

And certainly, we will continue to keep you up-to-date as these evolve, but I certainly need to maintain confidentiality relative to any discussions we may or may not have..

I know Gregg mentioned that it’s, you are assuming that mortgage debt gets paid off. But I imagine that you are not making this investment just for five weeks or six weeks of accretion.

I am just wondering that commentary was for guidance purposes, or is that what you think will actually happen?.

Well, again, our – we certainly need to make some assumptions as it relates to our guidance. And again, our expectation we – on any and all loan investments that we make, we are going to, within our guidance, make it our expectation that we are paid off at maturity.

Again, those outcomes are uncertain, but we felt like that was the appropriate assumption to make. And ultimately, if a borrower does not pay us off, as I mentioned earlier, we will assess our rights and remedies and go from there..

Great. Thank you..

Your next question comes from Nick Thillman with Baird. Your line is now open..

Hey. Good morning.

First one is, I wanted to touch on the leasing pipeline, the kind of late-stage pipeline that break out between new and renewal leasing, Richard, if you had that?.

Yes. So, the mix is still leaning in our pipeline towards new and expansion leasing. On average, over a longer time, it’s more like a 50-50 mix, but we are still leaning towards new and expansion. A lot of that, I would note, is driven by the fact that we still remain in a very good position from an exploration profile perspective.

So, we are going to naturally, because of that, have more new and expansion activity..

Helpful. And then, Gregg, I wanted to touch a little bit on some of the two large pending vacancies within the portfolio.

What you are assuming for redevelopment costs for maybe Fifth Third and if there is any additional spend you did at North Park with One Trust leaving?.

Sure. So, we have talked about this several times on previous calls. We are still finalizing our plans in the Fifth Third redevelopments in Charlotte. I think we will have really specific or more specific answers for you in our February call. But as we sit here today, it’s very likely to look like in cost like previous redevelopments that we have done.

For example, Promenade in Atlanta would be a good example. And we will have more details for you on that development in the February call. On North Park, I am going to let Richard talk about North Park about that..

Sure. I mean, we – I would say, stepping back, we are constantly evaluating every property in our portfolio, whether we need to be making improvements proactively to help drive leasing, help maintain quality at the level that we think our customers deserve and demand.

And so specifically to North Park, we are actively looking at some improvements that we can make primarily around amenities in light of the One Trust expiration in the first quarter of next year. But we have a handful of other properties where we are proactively making – we are reinvesting, if you will, across multiple markets..

And this is Colin. I will just add kind of some additional color that I think kind of highlights the portfolio today. If you will recall, we sold over $1 billion of, I would say, our lowest quality office from 2020 to 2022, and those were the assets probably that needed the highest amount of capital.

And then over the last several years, we have substantially reinvested in buildings like Promenade, buildings like Hayden Ferry, 3350, Peachtree, etcetera.

So, while we continue to evaluate some renovations and upgrades to properties like Fifth Third and North Park, the portfolio overall is in terrific shape and high quality, really from top to bottom. And so we think our portfolio and the amount of capital needed relative to some others is just in a really good place..

That’s it for me. Thank you..

Your next question comes from Upal Rana with KeyBanc. Your line is now open..

Hi. Thank you. Colin, you talked about reaching 90% occupancy at some point in the future.

Given you talked about some downdraft in occupancy through 3Q next year, do you feel like you are still on track to reach 90% occupancy and maybe even possibly 2026?.

Look, we are not going to set specific dates. But I do think once we – I think the Bank of America expiration, again, which has been long known as we kind of hit that, I think that will certainly be a trough in occupancy. And the pipeline of leasing in front of us and what we have already done, our hope is to recover that in very short order.

And I did mention in 2026, we do have, I would say, fairly modest expiration through 2026. And so I think that’s going to allow us to really move occupancy late in the second half of ‘25 and then certainly into 2026. But I am just not prepared to put a specific date on it yet. But I do think certainly, 90% is absolutely a goal of the company.

I do think it’s very achievable. And ultimately, our goal is to drive occupancy beyond 90% to as I said, more stabilized levels..

Okay. Got it. That was helpful. And then just quickly on the IBM lease.

I was wondering if you can give us some color on how that took place, and what’s Meta’s plan in the rest of the Austin market going forward?.

So again, the IBM lease, I think highlights the – still the current challenges in the private capital markets. And some of you might recall that IBM actually had a signed lease to anchor a new development just adjacent to The Domain that also had some speculative space.

And ultimately, we are unable to obtain the necessary financing to move that project forward. So, our team came up with a very creative solution to utilize some kind of underutilized space by Meta and ultimately find a really a win-win-win for Cousins, IBM and Meta, and I think it’s a terrific transaction.

I think again, kind of highlights my earlier comments that I think we are going to see customers from a cost effectiveness, find ways to utilize high-quality space that’s currently available, and that will ultimately tighten the market and then lead to new development.

But a terrific transaction for the company, and I think all are excited about the outcome..

Your next question comes from Peter Abramowitz with Jefferies. Your line is now open..

Thanks very much. Yes, 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? And if that is kind of part of the opportunity set you are considering with the capital you raised?.

It is. I still believe that near-term kind of acquisitions and investments are the most likely path for new investment for us, but those conversations regarding new development and build-to-suits are happening. And again, those conversations and discussions regarding a project like that usually start 1 year to 2 years out before ultimately commencing.

So, those conversations are starting. If I had to speculate on how our investment activity would sequence, I think we will see a period of time where investments are very attractive.

But I am excited that our team is – are having those conversations so that in a year or 2 years down the road, perhaps as the acquisition market becomes less compelling, we are ready to go with some highly attractive and hopefully, pre-leased development opportunities to continue a really attractive long-term growth profile..

Thanks Colin. And then just to go back to your comments around the dislocation between the public and the private market. I guess maybe a philosophical question, if you kind of step back and look at the environment, your cost of capital, and the public market’s pretty favorable and like you said, things are pretty challenging in the private market.

I guess do you see anything that could sort of change that dynamic, particularly on the private market side and cause things to converge, or is there anything out there that maybe you think about could sort of change that dynamic over the next year or so?.

Well, it is – I mean ultimately, markets converge. And 12 months ago, you would probably say the private sec still had a more advantageous cost of capital than the public. I think that’s probably reversed itself today. But longer term, they will likely converge. But I think that will take some time.

And part of that dislocation on the private side is so many private players, both debt and equity have their own share of legacy issues. And on the private side, those take longer to resolve than in the public market where there can be kind of instant liquidity.

And so I do think that, that is kind of the governor at the moment on private capital is trying to work through and clear their existing portfolio challenges before they are in a position to allocate new capital into the office sector..

Alright. That’s helpful. That’s all for me. Thanks..

Your next question comes from Dylan Burzinski with Green Street. Your line is now open..

Hi guys. 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, but just sort of trying to get a sense for your appetite to extend this loan possibly at maturity..

Look, we are going to – again, kind of any discussions and possible paths until those ultimately play out, we are going to continue the main confidentiality. And certainly, those are just conversations that have to happen between borrower and lender.

But again, I think I would go back to – we are highly comfortable in the quality of the collateral and the loan basis, and there is a wide variety of outcomes.

One, as we mentioned that we are assuming in our guidance is that it’s paid off, and we will continue to use that as our assumption and expectation and we will continue to reevaluate as the process plays out and it could be flip..

And I guess as you guys are evaluating other investment opportunities, are there certain markets where you are seeing just a higher investable universe today given where – either just more appetite in terms of sellers wanting to hit any bid ask there, whether it’s on the debt or equity side?.

No, I would say across our footprint, we think that there will be opportunity. And I think for us, it’s important to note that all over the long-term, we do want to continue to enhance our geographic diversification and grow our market share in places like Charlotte, in Nashville, in Dallas.

We have a lot of conviction across all of our markets, including Atlanta and Austin. And so this is kind of a unique period of time.

We are going to invest opportunistically in any of our markets when we think really attractive situations come up where we can invest in high-quality lifestyle office at an attractive basis with compelling risk-adjusted returns, and we hope some kind of near to medium-term accretion..

Great. Appreciate the details, Colin. Thank you..

Thank you..

Your next question comes from Brendan Lynch with Barclays. Your line is now open..

Great. Thank you for taking my question. 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?.

This is Richard. No, we don’t anticipate any other significant scaling back..

Okay. Great. Thanks.

One quick one on Saint Ann Court, the initial maturity date is in December, but is there an embedded extension option that you could discuss?.

There are certain extension options embedded in that, that required certain thresholds that will be met. And unfortunately, we just can’t provide any more specifics beyond that..

Understood. And maybe one other quick one, it sounded like taxes were a consideration in the cash same-property NOI coming down a little bit relative to the first half.

Just wondering if there is anything else specific that you could call out that might be behind that decline?.

It’s Gregg. No, that was the largest component by far..

Okay. Very good. Thank you..

[Operator Instructions] Your next question comes from John Kim with BMO Capital Markets. Your line is now open..

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?.

Sure. The mark to market was more like a customary escalator kind of in line. So, that really didn’t move the needle at all. But the – it’s a two phase extension, if you will. So, one of the floors will be expiring at the end of ‘25 and then the balance will expire at the end of ‘26..

Are there any other opportunities to go direct with other sub-leased tenants?.

No. That really is the only one as far as going direct with sub-lessees, so a fairly unique situation. But I would say that we have very encouraging tour activity already, even though BofA is yet to vacate the space and Charlotte is pretty compelling from an early stage leasing pipeline perspective..

Okay. And then we noticed that the $9.6 million bankruptcy claim of SVB is no longer mentioned in your supplement. I realize it wasn’t part of your guidance to begin with, but I was wondering what the status of that was..

It’s Gregg. The bankruptcy process continues along slowly as they always are. But we still have that unsecured claim out there for $9.6 million. The bonds are still trading in the secondary market between kind of $0.55 and $0.60 on the dollar. So, that’s still out there. It’s just not in any of our guidance..

Okay. Thank you..

There are no further questions at this time. I will now turn the call over to Colin for closing remarks..

Thank you all for joining us this morning and your interest in Cousins Properties. Please feel free to reach out to Gregg and/or Roni with any questions or follow-up. And we hope to see many of you out in Las Vegas at the NAREIT conference in November. Have a great day..

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines..