Cousins Properties - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered FFO of $0.69/share and GAAP diluted EPS of $0.05, with total revenues of $248.3M and rental property revenues of $246.5M.
• Revenue beat Wall Street consensus by ~$5.5M while GAAP EPS missed (Primary EPS consensus $0.098 vs actual $0.05); REIT investors focus more on FFO, which rose year over year (FFO $116.5M, $0.69/share vs $102.3M, $0.67/share in Q3’24).
• Guidance raised: FY2025 FFO per share to $2.82–$2.86 (midpoint +$0.02 vs Q2), driven by higher parking income, termination fees, lower SOFR, and interest income from a JV partner loan.
• Leasing remained robust at 551K sq ft, second-highest quarterly volume in three years; net effective rent of $28.37/SF was the second-highest in company history.
• Catalysts: re-accelerating Sun Belt corporate migration, minimal new office supply, pipeline with large users, and Dallas expansion via The Link acquisition ($218M).

Note: Values marked with an asterisk come from S&P Global; Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

• “Strong quarter” with FFO $0.69/share and raised FY guidance midpoint to $2.84/share; management highlighted robust leasing and growing pipeline tied to Sun Belt migration.
• Record-operational cadence: 551K sq ft leased, average net rent $39.18/SF, concessions down 13.8% QoQ, net effective rent $28.37/SF (second-highest on record).
• Strategic expansion: acquired The Link, Uptown Dallas, for $218M at ~$747/SF, immediately accretive; management sees near-term demand exceeding supply in Uptown.

What Went Wrong

• Occupancy fell to 88.3% (weighted average) and end-of-period leased to 90.0%, largely due to Bank of America’s planned move-out in Charlotte; same-property cash NOI grew just 0.3% YoY in Q3.
• GAAP EPS of $0.05 missed Street Primary EPS consensus (~$0.098), reflecting higher interest expense ($41.5M vs $30.8M YoY) and depreciation.
• Charlotte backfill/redevelopment timing extends into 2026–2027; management expects occupancy rebuild to be back-half weighted with 201 North Tryon leasing commencements geared more to 2027.

Note: Values marked with an asterisk come from S&P Global; Values retrieved from S&P Global.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and Welcome to the Cousins Properties Incorporated conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, October 31, 2025. I would now like to turn the conference over to Ms. Pamela Roper, General Counsel. Thank you. Please go ahead.

Pamela Roper (EVP, General Counsel, and Corporate Secretary)

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 Executive Vice President and 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 the potential risks contained in our filings for the SEC. With that, I'll turn the call over to Colin Connolly.

Colin Connolly (President and CEO)

Thank you, Pam, and good morning, everyone. We had a strong third quarter at Cousins. On the earnings front, the team delivered $0.69 a share in FFO and raised the midpoint of our guidance by $0.02 a share to $2.84 a share. The midpoint of our guidance now represents 5.6% growth compared to 2024. Importantly, leasing remained robust. We completed 551,000 square feet of leases during the quarter, which is our second-highest quarterly volume over the last three years. For the 46th consecutive quarter, we delivered a positive cash rent roll-up on second-generation leasing. We also acquired The Link for $218 million, which strategically expands our presence in the fast-growing market of Dallas. These are remarkable results all around. I will start with a few observations on the market. Most major companies are phasing out remote work. Office fundamentals are improving. Demand is growing.

During the third quarter, net absorption reached a post-pandemic high. Vacancy declined for the first time in seven years. With new construction starts at de minimis levels, any meaningful increase in new supply is four to five years away. Importantly for Cousins, corporate migration to the Sun Belt has firmly re-accelerated. As a result, our leasing pipeline is robust across all markets. We see a notable pickup in leasing interest from West Coast and New York City-based companies. Financial service and select large-cap technology companies are particularly active. While not necessarily full corporate relocations, they are significant hubs in some cases and highlight growth away from high-tax and high-regulation states once again. A recent rise in layoff announcements seems to be weighing on investor sentiment around the office sector. However, we have not seen any meaningful impact on demand. I'll explain why.

Office-using employment growth was historically high during the pandemic. At some companies, headcounts almost doubled. However, because of the pandemic, many of these new hires were remote, and associated office space was never leased. Now, as return-to-office mandates have become widespread, many companies lack the space to accommodate their pandemic-era headcount growth even after modest recent layoffs. Simply said, the tailwinds from the accelerating return to office remain greater than the impact of corporate layoffs from our vantage point. One more thing I'd like to note on this topic. Given the current exuberance around AI, corporate downsizing is often incorrectly tied to automation. Amazon is the most recent example. However, on last night's earnings call, Andy Jassy confirmed that Amazon's announcement of 14,000 job cuts was aimed at reversing excessive hiring during the pandemic. To put this in perspective, Amazon grew its headcount by almost 750,000 jobs since year-end 2019.

To reiterate my previous comments, the return-to-office is a more powerful lever for office demand than corporate rightsizing, and AI is not yet the existential threat that some expect it to be. This is an excellent setup for Cousins to advance our strategic priorities. Our team remains sharply focused on driving occupancy and earnings growth while maintaining our best-in-class balance sheet and enhancing the quality of our portfolio. To do so, we are prioritizing both internal and external growth opportunities. At quarter-end, the portfolio was 88.3% occupied and finally reflects the expiration of Bank of America's lease in Charlotte. Given our robust leasing pipeline and modest lease expirations in 2026, we are confident that we can grow occupancy next year. While the ramp will be heavily weighted towards the back half of the year, we have a goal of achieving occupancy of 90% or higher by year-end 2026.

Our creative investment team continues to evaluate several interesting investment opportunities. Our track record highlights our openness to a wide variety of transactions, including property acquisitions, select development, debt, structured transactions, and joint ventures. However, our core strategy remains the same: invest in properties that already are or can be positioned into lifestyle office in our target Sun Belt markets. Earnings accretion is a priority. To fund any new investments, we will always consider all options. To be clear, new equity at today's stock price certainly does not make financial sense. Dispositions of non-core assets, settling shares already outstanding on our ATM share settlements, and/or utilizing the balance sheet are more likely options. While sometimes characterized as conservative, we view our low-leverage balance sheet as a distinct offensive tool. At select times in the past, we have modestly flexed up our leverage to take advantage of compelling investment opportunities.

Given improving property fundamentals and a scarcity of competitive office capital, this could be one of those moments, and Cousins is uniquely positioned to seize it. As I mentioned earlier, the current midpoint of our guidance forecasts 5.6% growth over 2024. This would be our second consecutive year of FFO growth. Cousins would be one of one in the traditional office sector to accomplish this multi-year growth. Our team's ability to drive both internal and external growth is key. We plan to continue this streak in 2026. We are excited about what is ahead for Cousins. Demand is accelerating. New supply is at historical lows. The office market is rebalancing. We are growing earnings. Bank of America independently ranks our portfolio as the highest quality in the office REIT sector. Our balance sheet is exceptionally strong, and our G&A is highly efficient for our investors.

Before turning the call over to Richard, I want to thank our dedicated Cousins employees who provide outstanding service to our customers and each other every day. Richard.

Richard Hickson (EVP of Operations)

Thanks, Colin. Good morning, everyone. Our operations team once again delivered exceptional results in the third quarter. This quarter, our total office portfolio end-of-period lease and weighted average occupancy percentages were 90% and 88.3%, respectively. As expected, both were down this quarter, almost exclusively due to the known move-out of Bank of America at 201 North Tryon in Charlotte. Without Bank of America's expiration, our occupancy would have been steady this quarter. Like last quarter, I want to reiterate that our near-term occupancy expectations remain generally the same. We still see the third quarter as a bottom and then expect occupancy to be stable or modestly increase for a couple of quarters and then build higher in the back half of 2026. I would be remiss if I didn't once again point out that a big driver of our occupancy expectations continues to be our best-in-class near-term expirations profile.

As of third quarter end, we only had 6.3% of annual contractual rent expiring through the end of 2026. We continue to be laser-focused on proactively managing our expirations. During the third quarter, our team completed 40 office leases totaling an impressive 551,000 square feet with a weighted average lease term of 9.4 years. Total leasing volume was up 65% sequentially and even exceeded our strong first-quarter activity. This quarter's volume was also well above our one, three, and five-year volume run rates. We are very pleased with our year-to-date leasing activity, which stands at 1.4 million square feet. Our leasing pipeline also continues to be very healthy at all stages, has grown nicely throughout the year, and as a result, remains at record high levels.

As Colin mentioned, our pipeline also reflects a notable increase in large user activity, including new-to-market requirements looking to either relocate or build a new talent base in the Sun Belt. With regard to lease economics, second-generation cash rents increased yet again in the third quarter by a healthy 4.2%. Dallas and Tampa posted the largest cash rent roll-ups this quarter, with Austin and Charlotte not far behind. Average net rent this quarter landed at $39.18, which is the third-highest quarterly level in our company's history. Average leasing concessions, the sum of free rent and tenant improvements, were $8.12, which is 13.8% below last quarter and 7.6% below the full year 2024. The result was average net effective rent of $28.37, slightly higher than last quarter and the second-highest quarterly level in the company's history.

Our net effective rents were solid in every market once again, a testament to the broad strength of our Sun Belt markets and assets. Turning to the markets, JLL reported that transaction volume in Austin totaled 1.3 million square feet in the third quarter, a sequential increase and 16% above the three-year quarterly average. Across our Austin portfolio, we signed 97,000 square feet of leases in the third quarter, also sequentially higher. Of that activity, 52,000 square feet were new leases at the Terrace in southwest Austin, where demand continues to be impressive. The Austin team also completed an important 40,000 square foot renewal of the law firm at Colorado Tower in the CBD. Our Austin portfolio ended the quarter at 94.9% leased. Similar to Austin, JLL reported that quarterly leasing activity in Atlanta increased at 15.5% quarter over quarter.

They also noted that this quarter, new leasing made up a greater share of leasing volume than in recent years, with renewals accounting for just 17% of volume. We signed a strong 125,000 square feet of leasing in our Atlanta portfolio this quarter, and on a transaction count basis, two-thirds of our activity was new and expansion leasing. That included a 24,000 square foot headquarters expansion of a customer in North Park in the central perimeter, effectively doubling their footprint. Of particular note is that expansion was driven by a recent decision to bring employees back to the office as soon as possible.

Also at North Park, I'm very excited to report that we are in advanced lease negotiations with a Fortune 50 company to lease 166,000 square feet at the property on a long-term basis, which when complete will represent incremental occupancy of nearly 12% for the 1.4 million square foot project. This will clearly be a huge boost for North Park, but also for our occupancy trajectory at the total portfolio level. This quarter, our overall Atlanta portfolio occupancy increased to 83.4%, driven primarily by a handful of new and expansion lease commencements in Buckhead. Turning to Charlotte, fundamentals for high-quality office remain strong, with Class A space representing 70% of all new leasing during the quarter. Further, new development inventory in South End and Uptown is very close to fully leased.

As such, we continue to be very excited about our redevelopment projects at both 550 South and 201 North Tryon in Uptown, which we view as the highest quality existing office projects with availability in the market. Consistent with the new supply dynamic I just mentioned, we are pleased to say that in the third quarter, we completed an early long-term renewal with McGuire Woods at 201 North Tryon for 127,000 square feet. This was an important win, and we view this long-term commitment to 201 North Tryon as a validation of the building's quality, location, and of our ongoing property redevelopment. The same positive market dynamics are in play in Phoenix as well. In the past few months, they have been remarkably active on the leasing front. You may recall that we signed a 39,000 square foot new lease at Hayden Ferry One in the second quarter.

Since then, but subsequent to third quarter end, we signed an additional 52,000 square foot new lease at the building with a commencement date before year-end 2025. On top of that, we are in lease negotiations with another new customer for Hayden Ferry One that would bring the building to approximately 95% leased in very short order. During the third quarter, the team also completed two important renewals at both Hayden Ferry Two and Tempe Gateway, totaling 44,000 square feet. We could not be more pleased with the recent performance of our Phoenix portfolio. Last, I'll touch on Dallas. With the addition of The Link, we now own a three-building, 808,000 square foot portfolio in Dallas, with the largest asset being the 319,000 square foot Legacy Union One building in the Legacy submarket of North Dallas.

Ovintiv is the sole customer in the building, though they subleased substantially all of the building years ago. In the third quarter, we proactively entered into an early termination agreement with Ovintiv. Upon Ovintiv's new expiration in mid-2026, all of the subtenants will automatically become direct tenants. Through this agreement, we essentially multi-tenanted the building and can now more effectively engage with the subtenancy about future renewals. This move also greatly improves our flexibility in executing creative strategies to proactively backfill whatever space we may ultimately get back. Encouragingly, interest in the building has been very robust even in the short period of time since we executed this agreement, both with existing subtenants and potential new tenants. It is clear that demand for high-quality office in Dallas is very healthy, and we are excited to capitalize on it. I'll conclude with a brief revisit of our leasing pipeline.

Again, our overall pipeline is at record levels for Cousins, and 68% is new and expansion leasing. Further, we have 715,000 square feet of leases either signed fourth quarter year-to-date or in lease negotiations, of which 77% are new and expansion leases. That represents a total of 551,000 square feet of new and expansion leasing in our late-stage pipeline alone. For perspective, that's roughly 2X our year-to-date quarterly new and expansion leasing run rate. This is a very encouraging trend. As always, I want to thank our operations team for all of your hard work. Your talent and excellent customer service continue to position our company exceptionally well. Kennedy?

Kennedy Hicks (EVP and CIO)

Thanks, Richard. Before I discuss the transaction environment, I want to touch on our mixed-use development project, New Hawth in Nashville. We finished the quarter with the apartment component up to 86% leased, and we still expect for this part of the project to be stabilized at the end of the year. On the commercial side, we signed two spec suite leases, both of which commence in 2025, and brought that component up to 53% leased. We've been very encouraged by the recent uptick in tenant demand in the Nashville market, with several large office prospects currently considering New Hawth for both near-term requirements and future expansion needs. As you may recall, as part of the overall project, we have the ability to develop a 280,000 square foot office tower adjacent to the current one.

Given the infrastructure that is already in place, we believe we have a competitive advantage in our ability to offer expansion space in an expedited timeline upon tenant commitment. As a reminder, New Hawth is located in the Germantown neighborhood of Nashville, directly across the Cumberland River from Oracle's soon-to-be-developed state-of-the-art headquarters campus. Oracle has reportedly hired nearly 1,000 employees in the city to date and is pledged to have at least 8,500 workers in Nashville by the end of 2031. Just this month, the company released renderings showing its extensive plans for the campus. These plans include a pedestrian bridge that the company will build across the river to link its campus to New Hawth.

This multi-billion dollar investment by Oracle, as well as the recent tenant activity in the market, is a testament to both Nashville's talented and growing workforce as well as companies' desire for high-quality, differentiated office environments. We are excited about the response from the market for New Hawth to date and feel that the momentum is only building for this iconic project. Turning to our acquisition activity, as previously announced, we closed on The Link in Uptown Dallas during the third quarter. The Link is a trophy building that fits squarely into our lifestyle Sun Belt office strategy while expanding our footprint in Dallas. We acquired the 94% leased property for $218 million or $747 per square foot, pricing that represents a discount to replacement costs and has been immediately accretive to earnings.

We remain very enthusiastic about the Dallas office market and our ability to continue to expand our presence there. Uptown Dallas is receiving an outsized share of demand thanks to its appeal as an urban, walkable mixed-use district and the ongoing migration of financial and professional service jobs to the region, largely from New York and California. There are very few large blocks of available space remaining in Uptown, and we are already witnessing near-term demand exceed supply. The increasing tenant demand that we are experiencing across all of our markets has led to continued improvement in investor sentiment towards office, which is creating higher transaction volumes. Debt for office assets is now readily available, and equity is following, albeit still selectively and generally more oriented towards smaller assets.

We continue to seek out acquisition opportunities that meet our criteria, Sun Belt assets that are consistent with or better than the quality of our current portfolio that we can fund in a manner that is accretive to earnings and cash flow. We are mindful of maintaining geographic diversity and will remain laser-focused on asset quality and location. With the bidder depth increasing and buyers becoming more constructive around underwriting, we also intend to selectively explore dispositions as a funding source for new acquisitions and eventually development. Given the quality of our portfolio, we don't have a lot of assets that qualify as non-core, and we don't need to sell. When there are opportunities to accretively rotate into assets that improve our portfolio composition and mitigate higher CapEx needs, we will execute. With that, I'll turn the call over to Gregg.

Gregg Adzema (EVP and CFO)

Thanks, Kennedy. Good morning, everyone. 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 transactions before closing my remarks with an update to our 2025 earnings guidance. Overall, as Colin stated upfront, our third quarter results were outstanding. Second-generation cash leasing spreads were positive, same property year-over-year cash NOI increased, and leasing velocity was very strong. Focusing on same property performance for a moment, GAAP NOI grew 1.9%, and cash NOI grew 0.3% during the third quarter compared to last year. These numbers were negatively impacted by the Bank of America departure at our 201 North Tryon property that Richard discussed earlier. Despite initiating a significant redevelopment plan at this property, we left it in our same property pool.

I also want to take a moment to point out the lumpiness that can sometimes run through our quarterly same property expense numbers, usually driven by property taxes. Property tax true-ups, as we get clarity through the tax assessment and appeal process, can push the quarterly numbers around quite a bit, so it's always best to use longer time frames when looking at these numbers. For example, same property tax expenses that ran through our P&L were up 21.9% in the fourth quarter of 2024. They were down 12.1% in the first quarter of this year, down 22.4% in the second quarter, and up 14.7% this quarter. That's a lot of movement compared to the prior year. However, if you take a step back and look at all of 2025, we currently forecast our net property tax expenses to be essentially flat compared to 2024.

Moving on to our capital markets activity, our New Hawth joint venture, of which we own 50%, proactively approached our lender and amended its existing construction loan during the quarter. Our goal was to lower the SOFR spread and extend the maturity date, which we accomplished by paying down $39 million of the outstanding principal balance. In connection with this amendment, we also loaned our joint venture partner $19.6 million at an interest rate of SOFR+ 625 basis points, which they used to fund their portion of the repayment. Although we didn't sell any common shares during the third quarter, to date, we've sold 2.9 million shares through our ATM program on a forward basis at an average gross price of $30.44 per share. None of these shares have yet been settled.

In addition, we paid off a $250 million note upon maturity in early July using proceeds from our most recent $500 million bond offering in June. We also used proceeds from this bond to partially fund our acquisition of The Link property in Dallas that Kennedy just discussed. We continue to assess alternatives to fund the remainder of The Link acquisition, and as I discussed on our last earnings call, settling some of the shares we have issued on a forward basis and/or selling some non-core assets are two of the alternatives available to us. With our sector-leading balance sheet, we're in a position to be patient on this front. With that, I'll close our prepared remarks by updating our 2025 earnings guidance. We currently anticipate full-year 2025 FFO between $2.82 and $2.86 per share with a midpoint of $2.84. This is up $0.02 from last quarter.

The increase in FFO guidance is driven by higher parking income, higher termination fees, lower SOFR, and interest income from the loan to our joint venture partner. Our guidance assumes no additional SOFR cuts for the remainder of 2025. Bottom line, our third quarter results are excellent, and we're raising the midpoint of our full-year earnings guidance yet again. The current midpoint is $0.06 per share above the midpoint we provided when initiating the guidance in February. Although it's not in our guidance, as Colin said earlier, we anticipate the potential to continue deploying additional capital into compelling and accretive investment opportunities. We'll look forward to reporting our progress in the coming quarters. With that, I'll turn it back over to the operator.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Thank you. Your first question comes from the line of Blaine Heck from Wells Fargo. Please go ahead.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Great. Thanks. Good morning. Colin, I appreciate your commentary on AI and layoffs. Very helpful. Just to follow up, I know it was a very recent announcement, but given that Amazon is your largest tenant, have you spoken to them about their stake within your portfolio and whether the recent announcement might change their utilization at all? More broadly, I think there's an idea being brought up in our conversations that the Sun Belt might be a bit more susceptible to AI displacement given the amount of corporate back-office-type jobs housed in those markets. I'm wondering how you would respond to that and how you think your portfolio is insulated from that potential trend.

Colin Connolly (President and CEO)

Good morning, Blaine. I appreciate the question. There's a lot in there, and I think in particular, there's a lot of misconceptions in there. The first that I would highlight is kind of a narrative of gateway markets pushing that the Sun Belt is full of back-office jobs. That is just far from the case. As we look around the Sun Belt, the migration of technology and financial services companies has been largely driven by moving out of high tax and high regulation states into markets where there is a highly educated workforce and exciting and dynamic markets. Think Austin, think Atlanta, think Charlotte, think Nashville.

I could point to a lot of companies that have made those moves and intentionally made this decision to distribute their workforce more broadly around the country so as to not be overly concentrated in markets like San Francisco or Seattle or New York, where there have been some significant challenges. Think Oracle moving their corporate headquarters to Nashville. Think of the large hubs with Amazon in Austin and Nashville, as well as DC. Think about Goldman Sachs establishing a new hub, building an 800,000-square-foot campus in Uptown Dallas for 5,000 employees, many of whom will be front-of-house bankers. I think that is very much a misconception. I think in particular, many of those companies are highly engaged in AI. While the startup AI universe is largely located in San Francisco, in time, that AI demand will find itself distributed again throughout the country. We are already seeing that today.

Amazon, as I touched on in my prepared remarks, we have great conversations with Amazon all of the time. I think Andy Jassy dissuaded any fears that those risks were AI related. It was more about right-sizing the headcount to become more efficient. As I look at Amazon around the country, I think you're likely to see them be a net expander, not contractor. I want to make sure to highlight that. That certainly has been the trend with them as of late, and I don't see that changing.

Just kind of stepping back with a few statistics, with the enthusiasm around San Francisco and New York over the last 12 months, if you actually drill into the data and look at actual leasing activity in growth markets, which would include all of our markets relative to gateway markets, and this is JLL research, the growth markets are at 104% of the leasing levels over the last 12 months compared to 2019. The gateway markets, which would include San Francisco, New York, Seattle, Boston, that's at about 65%. That's just the last 12 months. Again, despite the exuberance over certain markets, the Sun Belt and growth markets continue to outperform.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Okay. Great. That's really helpful and all makes sense from my perspective. My second question is your expiration schedule, as you guys have mentioned, is relatively light in the next couple of years, which I think should help with the occupancy build. I was hoping you could give some color on whether the expirations in the next couple of years are kind of proportional relative to your market exposure or if there are any specific markets that have a high concentration of expirations in 2026 or 2027.

Richard Hickson (EVP of Operations)

Yeah. Hey, Blaine, this is Richard. We've talked about in the past, really, the only large expiration that we have through the end of 2026 is Samsung in Houston at Briarlake. They're 123,000 square feet. Nothing much has changed in terms of the status of that. A lot of that space has already been sublet. We're engaged with some of the subtenants on going direct or extensions when the subleases expire. We're actually talking with Samsung as well directly for some sort of a renewal. We'll see how that plays out, but it's going well so far, and we feel good about our ability to take care of the vast majority of that space. There is just not a lot of lumpy big activity right ahead of us. Obviously, we all know the V of A is now in the numbers and behind us. Proportionately, we feel good.

I mean, we obviously have a lot of wood to chop in Charlotte and feel very good about what we're doing with deploying capital to redevelop both 550 South and 201 North Tryon. We know that this play works and that when we've done these projects in the past, the most recent being Hayden Ferry, once we get these projects done and the redevelopment can be touched and felt by potential customers and existing customers, the leasing has been robust and very encouraging. We also feel good about our position there.

Colin Connolly (President and CEO)

Blaine and Colin, I'd just add back to your question. I'd say the expirations are pretty evenly distributed throughout the portfolio. There's not any one market that has significantly more than the others. I'd point out Austin probably has some of the, I'd say, the more modest expirations over the next couple of years.

That would be the one market that would stick out for its modest expirations.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Okay. Great. Very helpful. Thanks, everyone.

Colin Connolly (President and CEO)

Thanks, Blaine.

Operator (participant)

Thank you. Your next question comes from the line of Andrew Berger from Bank of America. Please go ahead.

Andrew Berger (Equity Research Associate)

Great. Good morning, and thank you for the thorough opening remarks. I just wanted to circle back on the comments around the balance sheet and leverage. Appreciate the current leverage levels are a bit lower than maybe some of your peers. What's sort of the upper bound of how high you would potentially be willing to take leverage at this point?

Gregg Adzema (EVP and CFO)

Andrew, good morning. It's Gregg. If you go back and look over the last 12 years, our leverage has remained, give or take, right around five times net debt to EBITDA. It's kind of varied between four and a half and five and a half generally over that period of time. When it's been at the top of that range, it's been associated with, as Colin stated earlier, when we've gone into kind of offensive mode. The two biggest pieces, the two biggest instances would be the mergers with both Tier and Parkway over the last decade. In both instances, we used the low-leverage balance sheet kind of as an offensive weapon to complete those transactions without having to raise any incremental equity, and then subsequently brought leverage back down to five times.

We think we're in another period like that right now where we'll be able to use it on an offensive basis. In terms of kind of what the cap is, we'll always maintain an industry-leading balance sheet. We think we have a little bit of room here. Really, the only hard number that you'd have out there is we do have an investment-grade rating for both Moody's and S&P. If you look at the write-ups, they tell you that six and below is consistent with what our current rating would be. From a rating agency's perspective, there's no problem going up to six. We haven't gone up to six as a company in well over a decade. I'm not taking that off the table, but that would certainly be the absolute upper bound of the range of what we would do. We've got some capacity here, though.

We're at 5.38 right now. That's a little higher than it's been recently because, as I discussed in my opening remarks, we bought The Link. We haven't fully funded it yet. We've got lots of options to do that, whether it's asset sales or settling some of these shares that we've issued on a forward basis under the ATM. We've got some capacity to flex the balance sheet here and drive earnings and drive growth at what we think is a really opportune time to do it.

Andrew Berger (Equity Research Associate)

Great. Thank you. As my follow-up, the parking income has been an area where you've frequently been able to beat over the last several quarters. Can you just talk about how much more upside there is from here? What are, at a high level, the physical utilization of your buildings and of the parking lots, and then also the pricing relative to pre-COVID, and also how you forecast this? Thank you.

Gregg Adzema (EVP and CFO)

Sure. If you go back at kind of pre-COVID times, 2018, 2019, total parking revenues generally represented about 8% of our total revenues. Now, the portfolio has changed quite a bit since 2019, but using that as kind of a starting point, our current parking revenues as a percentage of total revenues are just under 7%. Below where they were pre-COVID as a percentage of total revenues. By the way, they bottomed at around 5%. They have come up significantly since kind of 2021, which represented the bottom. Using that prior baseline of 8%, we still think we probably have a little bit of room to push. In terms of kind of what we've seen in that increases, and we keep surprising ourselves every quarter, it's about 75% utilization and 25% price, right? You can drive revenues either by using it more or by increasing the price.

It's been a 75%-25% balance as we move forward through this. Yes, we think there's still a little bit of room there. We do a ground-up analysis of this every quarter as we reforecast, and we continue to surprise ourselves every quarter. It's a good surprise, though, because it really is an indication of better utilization of our decks, which is exactly what we want to see. It plays into what Colin had talked about at the top of the call, which is the return-to-office continues, and if anything, is accelerating. Finally, in terms of a breakdown of parking revenues, our parking revenues are about 75% contractual and about 25% transient or non-contractual. That relationship, that 75%-25% relationship, is actually incredibly consistent over the years. It doesn't move much.

Operator (participant)

Thank you. Your next question comes from the line of Brendan Lynch from Barclays. Please go ahead.

Brendan Lynch (Director)

Great. Thanks for taking my questions. It sounds like you're still on track for your previous expectations for occupancy to trough in the third quarter, be steady and then improve. How should we expect that to kind of flow through to the trajectory for same-store cash NOI growth going forward?

Gregg Adzema (EVP and CFO)

I'll talk about just the trajectory, and then Colin can probably add a little granularity. The increase in occupancy that we've referred to in this call, kind of getting to 90% or better by year-end 2026, is highly likely to be back-end loaded. Not completely back-end loaded, but more back-end loaded than front-end loaded. In terms of how that plays through to our same-property performance, the one thing that we've got to deal with is this big Bank of America move-out that we just had in July. As you do year-over-year comps, which is how we report these numbers, how everybody reports these numbers, that's going to sit in the numbers as a prior-year comp until we get to July of 2026. You're going to see kind of lower numbers this next quarter.

Still positive, we think, but lower this next quarter and probably lower in the first half of next year. Once you get that out of the machine, out of the system, and you don't get the bad prior-year comps, you're going to see some significant acceleration in our same-property performance in the second half of 2026.

Brendan Lynch (Director)

Great. Thanks. That's helpful. Maybe sticking with Bank of America and the 201 North Tryon asset, it sounds like you're already making progress backfilling some of that space. I understand there's some redevelopment still going on. Maybe talk about the prospect of leasing up the rest of the space that has become available.

Richard Hickson (EVP of Operations)

This is Richard. Again, we feel really good. We just started in the past quarter the redevelopment of 201 North Tryon, but we're well underway. The market can see it. 550 South, I would note, is further along. The activity that we're seeing, I'd say, broadly in Charlotte is very encouraging. There are plenty of large users that are looking in Uptown and South End, but they're kind of figuring out that there's really no space left in South End to lease, and they're all starting to concentrate almost exclusively on Uptown and big blocks that are available. There's new-to-market activity, as Colin alluded to, that we're seeing that's extremely encouraging. We feel good about our position relative to supply and demand in the market and think we're going to have success here in the next 12 months or so. Yeah.

Colin Connolly (President and CEO)

Yeah and Brendan, it's Colin.

I'd just add on, consistent with my earlier comments about the re-acceleration of Sun Belt migration, I'd say in Charlotte in particular, you're seeing quite a bit of activity of large New York City-based financial services firms looking to grow and establish large hubs in Charlotte. I can't speak to the specifics of what's driving that, but it's been a noticeable acceleration over the last three to six months.

Brendan Lynch (Director)

Great. Thank you.

Operator (participant)

Thank you. Your next question comes from the line of Nick Thillman from Baird. Please go ahead.

Nick Thillman (Senior Research Analyst)

Hey, good morning, guys. Maybe Colin, you mentioned sort of the New York West Coast sort of migration into Sun Belt markets. As you look at the vacancy within the portfolio and these larger requirements, do you think you have the vacancy in the right spots in submarkets to kind of attract these tenants? I guess, how are you feeling about the pockets where you do have some vacancy on leasing that space up? Obviously, the new New Hawth AT&T stuff kind of pending here, but just some other stuff.

Colin Connolly (President and CEO)

Yeah. No, we do feel like, said differently, where we do have large blocks of space. Again, you mentioned North Park, Kennedy mentioned New Hawth, 201 North Tryon, out of Hayden Ferry. In each of those instances, we are seeing some interest and larger users taking a look at that space. That's very much encouraging. The other thing I'd mention, in certain areas of our footprint where we don't have space, we're actually starting to have some very preliminary conversations with large users coming out of New York and the West Coast who have potential interest in building kind of new buildings. That's been a very encouraging sign. We hope to address some of those needs.

Nick Thillman (Senior Research Analyst)

That's helpful. Kennedy, you mentioned some potential dispositions with capital markets improving. I know you're in the market with one asset in Tampa. Are those the type of assets we should be thinking about as disposition targets here in your term?

Kennedy Hicks (EVP and CIO)

Yeah. I mean, as we've said, we will only look to dispositions when we have exciting acquisition opportunities. We're monitoring the market, monitoring our portfolio, and assets where we think that match up well with the depth of the buyer pool today, we'll look to transact. Yes, I would say generally smaller and maybe less tied into the rest of our portfolio in specific markets.

Nick Thillman (Senior Research Analyst)

That's it for me. Thank you.

Colin Connolly (President and CEO)

Thanks, Nick.

Operator (participant)

Thank you. Your next question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa (Senior Managing Director)

Great. Thanks. Good morning. Richard, I was just wondering if you could provide maybe a little more granularity on that pipeline. It sounds obviously impressive. Can you give us maybe a sense of number and kind of size? I guess I'm just thinking if tenants are somewhat larger, getting them into occupancy by end of the year becomes a little bit more of a challenge. If they're smaller in that 25,000, 50,000, 75,000-foot range they can get in quickly. I'm just trying to get a sense of number and ultimate size of that pipeline.

Richard Hickson (EVP of Operations)

Sure. The pipeline overall is definitely partly being driven by larger activity and, again, new-to-market activity that we're seeing. To your point, the larger users tend to be slower moving just by the sheer nature of the size and the lift of getting that much space built out and occupied. I think right now we have roughly 100 total prospects within the pipeline overall. We've actually had some interesting cases just in the last couple of months. I alluded to one in Phoenix where we had a 50,000-square-foot new customer that we signed a lease with, a very fast-moving lease negotiation, and they're going to occupy the space that they leased literally within 60 days. That's unusual, but there are little pockets of activity where we're seeing actually a little faster occupancy. For a 50,000-square-foot customer to do that is pretty impressive.

It takes time for the bigger users to filter through the system. End of the day, we welcome large user activity. I think it's wonderful to have that engine beginning to fire again on all cylinders and are happy to wave those into our portfolio if we have the opportunity.

Colin Connolly (President and CEO)

Steve, it's Colin. You're right. Larger users take longer periods of time to lease up, and timing of commencements and build-outs are always a big variable. Ultimately, being able to meet our goals, I guess characterize that 90%+ goal at year-end 2026 is largely being driven by the leases that we have already signed and not yet commenced, or perhaps leases that we think we're going to do over the fourth quarter. Those won't have that large of an impact.

The timing of the commencement in that pipeline, all of those dates are factored into our projections, and we're optimistic about achieving our goal.

Steve Sakwa (Senior Managing Director)

Great. That's good color. Thanks. I don't know if Kennedy or Richard, maybe just on the New Hawth project. Obviously, that's been a little bit slower to lease, but I'm just curious with Oracle making a bigger push. One, have they kind of looked at the project as maybe temporary space for the employees that are coming into the market? If not, are there maybe companies that are feeding off of Oracle's move into the market and trying to be adjacent to their new campus? Is that a source of demand that's looking at the project?

Kennedy Hicks (EVP and CIO)

Yes. I think certainly Oracle being across the river and just their plans in a variety of industries and for the campus and growth is all great for the follow-on demand. We are starting to see some of that and are excited about the larger users that are showing up again just recently here.

Colin Connolly (President and CEO)

Steve, that directly answered your question. All of those are possibilities. I think Oracle, a company of that size, obviously heavily involved in AI, not just in San Francisco but here in Nashville, and the derivatives off of that and companies that work with Oracle, it's going to be fantastic for New Hawth. We've certainly seen an acceleration of interest in our space since Oracle has made their grand reveal recently of their project and the specific timeline. It's all very positive.

Steve Sakwa (Senior Managing Director)

Great. Thanks. That's it for me.

Gregg Adzema (EVP and CFO)

Thank you. Your next question comes from the line of Upal Rana from KeyBanc Capital Markets. Please go ahead.

Upal Rana (Senior Equity Research Analyst)

Great. Thanks for taking my question. Richard, I appreciate the details on the leasing pipeline. Given the stronger pipeline, are you seeing any shift in lease economics as it relates to rents, or concessions, or TIs in there?

Richard Hickson (EVP of Operations)

No, not at this point. I think it's actually been relatively stable. I mean, our concessions came down a little bit this quarter. I'm really pleased with the fact that our net effective rents, though, are hanging in there and been very steady. I think we're right on top of the second quarter for net effective rents. If anything, I'd say we're feeling, while TIs continue to be large, we're feeling like we're able to hold the line on rate and get net effective rents and produce stability there.

Colin Connolly (President and CEO)

Yeah. Upal, it's Colin. I'm just adding, we do think we're relatively close to an inflection point where it is likely to become a landlord's market.

With no new construction having started really over the last couple of years and not expected to have any meaningful uptick there, and now demand accelerating, a shortage of what I would characterize as lifestyle office in some of our markets is absolutely coming, and in some cases, almost here. If you talk to the major tenant reps across our markets, whether it's in Atlanta or Austin or Charlotte, those large tenant reps are looking out to their 2027, 2028, 2029 expirations and starting to have some real concern that they won't have the options to accommodate growth for their customers. Hopefully that could ultimately translate into us driving net effective rents, whether it's face rents or ultimately bringing concessions down.

Upal Rana (Senior Equity Research Analyst)

Okay. Great. That was helpful. With the Ovintiv termination, could you provide any lease economics or rent changes that you may have had with the new subtenants relative to what Ovintiv was paying? If there were none, where's market rents today relative to what Ovintiv was historically paying?

Richard Hickson (EVP of Operations)

Sure, there are some changes that will happen as Ovintiv rolls out of the stack in mid-2026. It's not material. It won't move the needle from an NOI perspective. We're definitely going to be able to push and roll up rents to the extent we backfill or renew any of that space. We're in the market, if you will, with kind of mid-$40s net right now for the building, which is meaningfully higher than where employees' rents are.

Upal Rana (Senior Equity Research Analyst)

Thank you, mate. That's it for me. Thank you.

Operator (participant)

Thank you. Your next question comes from the line of Ray Zong from J.P. Morgan. Please go ahead.

Ray Zhong (REIT Equity Research VP)

Hey, good morning. Thanks for the color on looking out on the occupancy guidance. Just curious, sounds like 201 North Tryon is part of that 90% occupancy comment as well. Just want to confirm that. That's number one. Number two is, can you remind us the redevelopment timing and how much you're going to spend there and when can we expect the backfilling to take place in terms of commencing?

Colin Connolly (President and CEO)

Ray, just to clarify your question, as it relates to 201 North Tryon, your question is, will it be 90% or is it in the 90% guidance? Is that your question?

Ray Zhong (REIT Equity Research VP)

Yeah, the second one. You mentioned the 90% comment towards year 2026. Curious if that includes 201 North Tryon in the occupancy pool. I'm guessing it's a yes, but just want to confirm.

Colin Connolly (President and CEO)

It absolutely does. As we've just gotten that space back and we're kind of under construction on our redevelopment, that forecast does not include a significant amount of commencement of new leasing at 201 North Tryon by year-end 2026. We certainly hope to outperform that, but I'd say largely the releasing and the commencement of those leases at 201 North Tryon are more geared towards 2027.

Ray Zhong (REIT Equity Research VP)

Got it. Yeah, that's what I was trying to get to. The second part of that question would be, can you remind us the spending amount on there? I think you guys also mentioned it's not going to be capitalized on the going dark space, right?

Colin Connolly (President and CEO)

I'll tackle the gap of it and then put the total number in there. Since we're not taking this out of the portfolio, we're not capitalizing interest against the basis of the existing building. We'll just capitalize interest on the new spend. Not a big movement there in terms of capitalized interest. In terms of total spending.

It's approximately $40 million, with an anticipated completion in the first quarter of 2027. It's very much consistent with the spending and the type of redevelopment we did at the Promenade Tower, Promenade Central Building here in Atlanta, or the Hayden Ferry project out in Phoenix that have all been really well received. I'd say it's a very similar project, slightly higher nominal dollars because it's just a larger tower.

Ray Zhong (REIT Equity Research VP)

Gotcha. That's very helpful. Thank you. That's it for me. Thank you.

Operator (participant)

Thank you. Your next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.

John Kim (Managing Director of US Real Estate)

Thank you.

This quarter, other than the New Hawth loan, you didn't make any investments either on the asset or debt mezzanine side. I was wondering if you could talk about cap rate or yield compression you've seen just given the increased competition. If we could focus on Dallas, there was recently a Harwood portfolio sale, which included St. Ann Court. That recently traded. I was wondering if you could discuss how close you were to acquiring that portfolio and any commentary you have on pricing.

Colin Connolly (President and CEO)

John, on hardware, we were kind of six, seven on it.

John Kim (Managing Director of US Real Estate)

We appreciate it.

That's what I mean.

Colin Connolly (President and CEO)

I'll go back to the beginning in terms of cap rates. I mean, as Kennedy alluded to, you're certainly seeing kind of more investors focus and become interested in office, and debt certainly readily available. I would say cap rates we think are likely to compress. We haven't seen a lot of that compression just yet, but as more equity investors got to make the decision to pull the trigger in office, we think that is likely to come. Specifically to Hardwood, obviously, we had some involvement in the St. Ann's asset, and they now have subsequently brought the entirety of the portfolio out to the market. I think you've seen some recent announcements as to how that is playing out. Certainly something that we looked at, and we're obviously strategically very focused on growing our presence in Dallas.

I think ultimately we've made a decision to focus our efforts elsewhere.

John Kim (Managing Director of US Real Estate)

Okay. On the leasing success you had at Hayden Ferry One, can you just provide some commentary on either the tenant or industry that signed there? Anything you can give on redevelopment yields or return on invested capital on the redevelopment? Maybe for Gregg, can you remind us when you plan to place that asset back into the same store pool?

Gregg Adzema (EVP and CFO)

Sure. I'll start. The leasing has been pretty broad-based. The 50,000-ish square foot customer that we signed subsequent quarter-end was a regional engineering firm that actually has a very nice, high-growth data center component to their business. We had previously signed a regional headquarters lease with a regional bank financial services company. The company that is in lease negotiations right now is a corporate headquarters. It's not new to market, and I'd characterize it as a healthcare/consumer goods-focused company. It is very diverse, actually, the new tenants that we're bringing into the project. We've been very pleased with the profile of all of these customers, their headquarters, their high-end uses, not back office. Very excited about the new tenancy at Hayden Ferry One and elsewhere in the project.

Colin Connolly (President and CEO)

In terms of when we bring it back in our same property pool, likely January 1st, 2028. We only change our same property pool one time a year, January 1st of each year. In January 1st, 2027, which would be the next logical time to do it, we won't have a good year-over-year comp because it's not going to stabilize till later in 2026. It will be January 1st, 2028.

John Kim (Managing Director of US Real Estate)

Appreciate it. Thank you.

Gregg Adzema (EVP and CFO)

Thank you. Your last question comes from the line of Dylan Burzinski from Green Street. Please proceed.

Dylan Burzinski (Senior Analyst)

I guess maybe following up on one of John's questions, given that bidding tends to grow, and I think in the past, you guys have focused most of your acquisition efforts towards what you can describe as sort of mispriced core assets. Given what it seems like cap rates are compressing in this subset of investment opportunities, is it your expectation that most of what you guys are going to be looking at moving forward will sort of be more closer to the risk profile of, say, Persinium versus Dell Tower, Vantage, and The Link?

Colin Connolly (President and CEO)

Dylan, it's Colin. I think, as I said, we expect them to likely compress, but we still have not seen that compression yet. I do think that there is more opportunity consistent with what we have been doing. Certainly, those types of assets fit our quality profile. We're not opposed to looking at high-quality assets that have vacancy and taking lease-up risk. I would just point out that in our Sun Belt kind of urban markets where Cousins operates, just given how robust the leasing has been, there are not that many high-quality buildings that have significant vacancy. Those like Persinium can arise from time to time, and we would absolutely look to capitalize on those opportunities. I do think there's more of the recently developed, stabilized, immediately accretive to earnings type opportunities that we're pursuing.

Lastly, as I mentioned before, we are starting to see some large users who are migrating from the West Coast and New York City very much open to new development with deliveries out, call it in 2029. We are also spending time on those types of situations as well that I think would come with a significant amount of pre-leasing and very, very attractive return on costs.

Dylan Burzinski (Senior Analyst)

That's helpful. Appreciate that, Colin. I guess just one more. You mentioned RTO was outweighing sort of the weak job growth prospects. At a certain point in time, this tailwind should naturally wear off, and the important driver of office demand will once again be job growth. Just curious if you have any thoughts on sort of how long or how much fuse is left related specifically to some of this RTO demand that we're seeing.

Colin Connolly (President and CEO)

Yeah. I think there's still some runway there. Again, highlighting Amazon, who grew their headcount over the last five years by 750,000 people and had not signed a significant amount of leasing along the way. That's representative of what we're seeing from a lot of different companies. I do think that there's some runway there. At some point, as you indicated, that will run off, but nothing else is static either. We would anticipate over time, while we're in a bit of a softer patch now, at some point, hopefully, the economy begins to grow and job reductions become job growth once again. That has us very bullish on what's in front of us. I think it's important to continue to highlight the lack of new supply that gives us really positive runway over the next four to five years.

The economy will cycle, but without new supply, the market will tighten. I think it's a good time to be an owner of existing lifestyle office buildings in the Sun Belt.

Dylan Burzinski (Senior Analyst)

Perfect. Thanks, Colin. Appreciate it.

Colin Connolly (President and CEO)

Thank you.

Operator (participant)

Thank you. That ends our question-and-answer session. I'll now hand the call back to Mr. Colin Connolly for any closing remarks.

Colin Connolly (President and CEO)

We appreciate your time and interest in Cousins Properties. I want to wish everybody a happy Halloween. If you have any follow-up questions, please feel free to reach out to Gregg Adzema or Ronnie Imbo, and we hope to see many of you at the NAREIT Conference in Dallas in December. Have a good weekend.

Operator (participant)

This concludes today's call. Thank you for participating.