Cousins Properties - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered resilient operating performance and accretive portfolio upgrades: FFO per share was $0.69 (vs. $0.65 in Q4’23), cash same-property NOI grew 3.4%, and leasing volume hit 462k sf with 6.7% cash rent roll-up.
• Management invested ~$1.0B in trophy lifestyle office assets (Sail Tower in Austin, Vantage South End in Charlotte) funded on a leverage-neutral basis via two equity raises ($186.1M, $282.8M) and $400M public notes; these transactions were “immediately accretive to earnings”.
• Initial FY2025 guidance: FFO/share $2.73–$2.83; Net income/share $0.25–$0.35; includes $4.6M SVB claim disposition and assumed refinancing of a $250M senior note in July 2025; excludes acquisitions/dispositions/development starts.
• Catalysts to monitor: near-term accretion from Sail/Vantage, continued leasing momentum and occupancy rebuild post Bank of America move-out (temporary trough expected mid-2025), access to unsecured debt at tight spreads vs. peers, and potential incremental investments (including debt-side opportunities) as private/public valuations converge.

What Went Well and What Went Wrong

• What Went Well

  • Accretive external growth: “We invested almost $1 billion into trophy lifestyle office properties...These transactions were immediately accretive to earnings and were funded on a leverage neutral basis,” said CEO Colin Connolly.
  • Strong leasing and pricing: 462k sf signed in Q4; second-generation cash rents +6.7%; net effective rent $23.88/sf/yr; same-property cash NOI +3.4% YoY.
  • Balance sheet access and pricing: $400M notes priced (5.375% due 2032); management highlighted bonds trade at tightest spreads to Treasuries among traditional office REITs.

• What Went Wrong

  • GAAP earnings pressure: Q4 Net income/share fell to $0.09 (from $0.12 in Q4’23), “primarily attributable to increased depreciation expense”.
  • Interest expense drift: Q4 interest expense rose to $33.1M vs. $27.5M in Q4’23 (partly funding growth and higher rates), contributing to lower GAAP EPS despite FFO growth.
  • Near-term occupancy headwind: Management flagged a temporary occupancy trough in 2H 2025 due to Bank of America’s Charlotte move-out and OneTrust in Atlanta, before rebuilding thereafter.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to Cousins Properties Fourth Quarter conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead.

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

Thank you. Good morning and welcome to Cousins Properties fourth 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 Regulation G requirements.

If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental financial 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 contained in our filings with 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 an exceptional fourth quarter at Cousins. On the earnings front, the team delivered $0.69 a share in FFO, which is above the midpoint of our guidance. Same property, net operating income increased 3.4% on a cash basis. Leasing remained very strong. We completed 462,000 sq ft of leases during the quarter, with a 6.7% cash-rent roll-up. In addition, we invested almost $1 billion in trophy lifestyle office properties in our Sunbelt markets. The transactions were immediately accretive to earnings.

To fund this growth on a leverage-neutral basis, we raised $469 million of equity in two separate issuances and raised $400 million of debt, with an issuance of unsecured senior notes. We released 2025 guidance last night. The midpoint of the range is $2.78 per share, which was also above consensus and represents approximately 3.5% growth compared to 2024. Gregg will provide more specifics in a moment. Our remarkable 2024 achievements and encouraging 2025 guidance continue to highlight the strength and resiliency of our leading Sunbelt lifestyle office portfolio and best-in-class balance sheet.

Before discussing the quarter in more detail, I will start with a few observations on the market. Fundamentals are improving. The existing supply of office buildings is declining as older buildings are converted or torn down, and new construction is almost nonexistent. At the same time, leasing demand is accelerating. During the fourth quarter, leasing volume nationwide reached a new post-pandemic peak for the third consecutive quarter, and net absorption was positive for the first quarter since 2021. We believe vacancy is reaching a peak, and market tightening is not far off in the lifestyle office sector. Return to office is transitioning to a return to normal.

With these tailwinds, our team remains strategically focused on driving earnings growth while maintaining our best-in-class balance sheet. To do so, we are prioritizing both internal and external growth opportunities. Our portfolio was 89.2% occupied at year-end, up from 87.6% at year-end 2024. Given the quality of our real estate and, again, the strength of the balance sheet, we are growing our leasing market share and driving occupancy back to more stabilized levels. Bank of America's expiration in Charlotte this year is a small speed bump in that process.

However, with the pickup of leasing activity and modest expirations through 2026, we believe there is meaningful upside in the cash flow of our existing portfolio in the intermediate term. Externally, we are executing on compelling investment opportunities. During the fourth quarter, we closed on the acquisition of Vantage South End in Charlotte with a purchase price of $328.5 million, and the acquisition of Sail Tower in Austin with a purchase price of $521.8 million. Both Vantage South End and Sail Tower are leading lifestyle office properties located in vibrant neighborhoods near other Cousins' assets.

In completing these strategic new investments, we were able to grow earnings on a leverage-neutral basis, upgrade the quality of our portfolio, and enhance the scale of the company. Our 2024 transaction activity highlights the creativity of our team and openness to a wide variety of opportunities at this point in the cycle, including debt, structured transactions, joint ventures, and property acquisitions. However, our core strategy remains the same: invest in properties that already are or can be positioned into lifestyle office in our target Sunbelt markets. Near-term accretion remains a priority.

While there are signs of thawing, 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 existing portfolios and remain on the sidelines. Conversely, the public markets show meaningful signs of improvement. Liquidity has grown in the unsecured debt markets, and spreads have tightened materially. Office REIT prices have begun to rebound. This creates a compelling investment opportunity for Cousins as private and public markets' 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 are resetting so they can be reimagined or demolished. This process is now underway. At the same time, the lifestyle office market is improving. New construction is at historic lows while leasing demand is accelerating. The market is rebalancing, and a shortage of premium lifestyle space is not far off. Cousins is uniquely positioned for this environment. We built the company to thrive during all economic cycles, and today we are in a highly advantageous position.

We are in growing Sunbelt 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 bonds trade at the tightest spread to Treasuries among all traditional office companies. In short, we have great access to capital, and we see great opportunity. We are excited about the future for Cousins. Before turning the call over to Richard, I want to thank our talented Cousins employees who are the foundation of our success. They are dedicated, hardworking, and provide excellent service to our customers. Thank you. Richard?

Richard Hickson (EVP of Operations)

Thanks, Colin. Good morning, everyone. Our operations team wrapped up 2024 with another fantastic quarter, delivering one of the most remarkable operating years in our company's recent history. In the fourth quarter, our total office portfolio end-of-period leased and weighted average occupancy percentages were 91.6% and 89.2%, respectively. Both metrics were sequentially higher. Further, I'm thrilled to say that our total office portfolio occupancy ended 2024 a full 160 basis points higher compared to the fourth quarter of 2023.

Our fourth quarter occupancy included the weighted average impact of both of our fully occupied December acquisitions: Vantage South End in Charlotte and Sail Tower in Austin. I would note that these assets only accounted for about 20% of our weighted average occupancy increase in the quarter, with most of our occupancy build driven by lease commencements in Atlanta, Phoenix, and Tampa. I have one reminder on occupancy: the long-anticipated move-outs of OneTrust in Atlanta and Bank of America in Charlotte will happen this year, which we still expect to lead to a downdraft in occupancy and a temporary trough through the third quarter. However, we have exceptionally low expirations of only 12.1% of annual contractual rent through the end of 2026.

When coupled with continued strong leasing demand for lifestyle office, we see occupancy building back toward the end of this year and beyond. Now on to results. Leasing in the fourth quarter was once again exceptional for Cousins. Our team completed an impressive 45 office leases totaling 462,000 sq ft, with a weighted average lease term of 8.3 years. This was our second-highest quarterly square footage volume of this year, and our total signed activity for the year exceeded 2 million sq ft, the most since 2021. 31 of our completed leases this quarter were new and expansion leases, representing nearly 70% of our total activity in transaction terms.

For the full year, new and expansion activity also accounted for 70% of our activity in square foot terms. Regarding lease economics, our average net rent this quarter came in at $35.81 and $39.77 for the full year. This quarter average leasing concessions, defined as the sum of free rent and tenant improvements, were $9.21. This compares favorably to our average concessions in the first half of 2024 of $9.56. Recall that concessions were well below trend in the third quarter, driven by our sizable lease with IBM in Austin. Average net effective rent this quarter came in at $23.88 and $28.17 for the full year. Our full-year number represents an impressive 14.7% increase over 2023.

Finally, second-generation cash rents increased again in the fourth quarter at a healthy 6.7%. At the market level, our Neuhoff development in Nashville continued its momentum. This quarter, the team completed 7,100 sq ft of office leases with two customers, taking the commercial portion of the project to 46% leased. We are also in advanced lease negotiations with an additional 18,000 sq ft financial services customer that would take the commercial portion of the project to 50% leased. Multifamily leasing continues to progress nicely as well, as we were at 38% leased to end the fourth quarter, a sequential increase of 17 percentage points.

This equates to an average of about 30 units leased per month. In Atlanta, the broader market's 2024 leasing volume was the highest since 2016, and sublease availability dropped to its lowest level in eight quarters, according to JLL. Across our operating portfolio, we signed a very strong 251,000 sq ft of leases this quarter and rolled up cash rents 8.9%. Further, the total amount of activity in Buckhead was notable at approximately 187,000 sq ft, or 75% of all Atlanta activity. Importantly, our Buckhead activity included the long-term renewal of law firm Greenberg Traurig for 100,000 sq ft at Terminus 200.

Greenberg was previously set to expire in 2026, and with this renewal, we now only have one expiration over 100,000 sq ft left in our entire operating portfolio in the calendar year 2026. Turning to Austin, JLL noted that vacancy appears to have stabilized, with overall market quarterly leasing activity totaling 1.2 million sq ft and a second straight quarter of positive net absorption. Our Austin team signed a healthy 80,000 sq ft of leases this quarter, rolling up cash rents 7.5%, and our portfolio now stands at 94.9% leased.

As an update, we remain very encouraged by our progress in renewal negotiations with Time Warner, which occupies 112,000 sq ft at Domain Point and expires in September of 2025. Please note this is our only material 2025 expiration whose outcome is not yet determined, and we view our renewal assumption for Time Warner, included in our 2025 guidance, to be relatively conservative.

In Charlotte, the office market ended 2024 with its first positive net absorption since 2021, and broader market new leasing volume in the fourth quarter was 871,000 sq ft, marking the highest level in nine quarters, all per JLL. In our portfolio, we remain highly focused on the major redevelopment of both 550 South and Fifth Third Center. Given that new office construction activity in Charlotte is at its lowest level since 2013, we anticipate our redevelopments will be well received by lifestyle office-seeking customers in the coming years. In Tampa, the market remained strong throughout 2024, demonstrating resilience through multiple hurricanes.

This quarter, our Tampa team signed 57,000 sq ft of leases, of which 74% were new and expansion leases. Our Tampa portfolio occupancy increased a full percentage point in the fourth quarter and is currently 95.6% leased. In Phoenix, CBRE noted that the market produced its largest quarterly positive absorption this quarter since the fourth quarter of 2019. Demand remains concentrated in amenity-rich spaces, particularly in Tempe and the Camelback Corridor, which we have seen firsthand. This quarter, our Phoenix team also signed 57,000 sq ft of leases, of which an impressive 100% were new leases.

The team also rolled up cash rents 4.6% in the quarter. Looking ahead, our leasing pipeline at every stage remains healthy, and we anticipate continued leasing and operational momentum. Despite macroeconomic uncertainty, fundamentals in lifestyle office are broadly encouraging. As we have all seen in recent news headlines, the return to mostly in-office work is gathering steam every passing week. This has resulted in demand for lifestyle office space in a time when new construction activity is hitting historic lows. We believe these tailwinds will play out even further in 2025.

As always, I want to thank our talented operations team, whose exemplary work made 2024 a remarkable year. We are looking forward to continuing the momentum in 2025. Kennedy?

Kennedy Hicks (EVP and Chief Investment Officer)

Thanks, Richard. As discussed, the fourth quarter was an exciting one for investment activity. We completed two significant asset acquisitions that align with our core strategy: to thoughtfully and accretively invest in Sunbelt lifestyle office environments while maintaining our strong balance sheet. In early December, we acquired Vantage South End in Charlotte in an off-market transaction. Vantage South End is one of the most dynamic lifestyle office environments in the Southeast, offering 639,000 sq ft of office and retail across two buildings that delivered between 2021 and 2022.

The 97% leased project features a diverse rent roll leased to a variety of professional service firms and high-profile corporate users who have heavily invested in their workspaces with a focus on employee experience. The restaurants at the project are some of the busiest in the city, creating an exciting, energetic amenity base for both customers and the community. Clearly, from a quality perspective, this asset is an excellent fit for our portfolio and strategy. From a market perspective, it's also very complementary to our Charlotte portfolio, which is now over 2 million sq ft.

Vantage is located just down the street from our 98.7% leased Railyard project and our South End Station development site, furthering our operating efficiencies and deepening our already strong customer relationships within the market. We are encouraged by the recent overall activity and leasing interest in Charlotte as a whole. Finally, the financial profile is compelling and immediately accretive to earnings. We acquired the recently built project for $328.5 million, a basis of $514 per sq ft, well below what it would cost to build today. The initial cash yield is 7.4%, with a gap yield of 8.4%, a spread driven by over nine years of remaining lease term.

Furthermore, the in-place rents, when taken into account parking, are below today's market and far below what it would take to justify new construction in the future, creating significant potential upside over the long term. Next, in mid-December, we closed on the acquisition of Sail Tower in Austin. Sail Tower is an 804,000 sq ft, skyline-defining trophy asset in downtown, steps from Lady Bird Lake. The building delivered in 2022 and features incredible protected views, a variety of terraces and outdoor spaces, and an amenity base that's unrivaled in the city. The office portion is 100% leased to Google for the next 13 years and is anticipated to be the company's Austin hub.

Like Vantage, the trophy quality of the asset and its location is additive to our portfolio and enhances our customer profile and overall weighted lease term. We're excited to add this to our Austin portfolio and let our strong team on the ground add their operational expertise. We acquired Sail Tower for $521.8 million at closing, a basis of $649 per sq ft. There is approximately $37.2 million of outstanding tenant improvement allowance, $32 million of which we will fund at the end of the second quarter of this year. All in, our basis is extremely attractive and below replacement costs in a market with dwindling land sites.

Our initial cap yield for the first 12 months equals 8.7%. In this instance, the in-place rents are nearly 25% below what would likely be achieved for available space in the building today. Once again, this is a strategic transaction that provides accretion, growth, and long-term potential upside. Gregg will speak to the capital markets transactions that funded these acquisitions on a leverage-neutral basis. Also, in the beginning of the fourth quarter, and as discussed previously, we acquired a $138 million loan secured by Saint Ann Court in Dallas. The loan had an initial maturity date of December 7, 2024, and the borrower paid us off in full on January 7, 2025.

Cousins received default interest for that time period, in addition to the base interest rate of SOFR plus 366 during our investment period. Looking forward, we remain focused on our core strategy and intend to continue to identify and execute on Sunbelt transactions that are consistent with the quality of our portfolio and will allow us to grow in an accretive manner. We believe we continue to have a competitive advantage relative to other office buyers, both public and private, and are optimistic that 2025 will be another active investment year for Cousins. With that, I will turn the call over to Gregg.

Gregg Adzema (EVP and CFO)

Thank you, Kennedy. I'll begin my remarks by providing a brief overview of our results, and I'll spend a few minutes on our same property performance before moving on to our capital markets and development activity before closing with a discussion on our balance sheets and providing a little more color on our initial 2025 earnings guidance. Overall, as Colin stated upfront, our fourth quarter results were outstanding. Second-generation cash leasing spreads were positive for the 43rd straight quarter. Leasing velocity was excellent, and same property year-over-year cash NOI increased.

It was also a very productive quarter as we accretively invested almost $1 billion. Focusing on same property performance for a moment, GAAP NOI grew 5.3% and cash NOI grew 3.4% during the fourth 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 3350 Peachtree property in Atlanta and our Tempe Gateway and 100 Mill properties in Phoenix, as well as a continued pickup in parking revenues.

I also wanted to take a moment to point out the lumpiness that can sometimes run through our quarterly same property expense numbers. Usually, it's 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 time frames when looking at expense numbers. For example, our same property tax expense for the fourth quarter was up 21.9% over last year, driven by a favorable true-up in the fourth quarter of 2023.

However, if you zoom out a little bit and look at the entire year, property tax expenses for our same property portfolio were essentially flat. Moving on to our capital markets activity, we completed three significant transactions during the fourth quarter in support of the investment activity Kennedy discussed earlier. In November, we issued six million shares of Common Stock, generating proceeds of $186.1 million. In December, we issued 9.5 million shares of Common Stock, generating proceeds of $282.8 million. And also in December, we completed our second investment-grade bond offering, issuing $400 million of notes at an initial yield of 5.46%.

Now that we have two unsecured bond issuances outstanding, the initial $500 million issuance completed in August and this more recent issuance completed in December, relative pricing is settling in, and our bonds currently trade at the tightest spread to treasuries among all traditional office rates and much tighter than any secured debt options currently. We also have ample balance capacity to pursue investments as net debt to EBITDA is an industry-leading 5.16 times, and our liquidity position is excellent. Turning to our development efforts, the current pipeline is comprised of a 50% interest in Neuhoff in Nashville and 100% of Domain 9 in Austin.

Our share of the remaining estimated development costs is approximately $39 million, which will be funded by a combination of our Neuhoff construction loan and our operating cash flow. I'll close by providing our initial 2025 earnings with a little color. We currently anticipate full year 2025 FFO between $2.73 a share and $2.83 per share with a midpoint of $2.78. This is up $0.09 per share, or approximately 3.5% over our 2024 results. Our guidance includes the disposition of our bankruptcy claim with SVB Financial Group, which we sold for $4.6 million earlier this week.

This will run through our other income line item in our P&L, and it is included in FFO. Our guidance also includes the assumed refinancing of the $250 million senior note that matures on July 6. This is our only debt maturity this year. Finally, our guidance assumes the mezzanine loan we have in the Radius property in Nashville is paid off at par on September 30. Our guidance does not include any speculative property acquisitions, property dispositions, or development starts. If any of these do take place, we'll update our guidance accordingly. One quick note before closing: there's a typo on the development pipeline schedule in our supplement.

We mistakenly changed the stabilization date for our Domain 9 development. This date should have remained the first quarter of 2025 this quarter. We have updated this in the supplement and posted it on our website. Bottom line, our fourth quarter results are excellent, and our initial 2025 guidance indicates the second straight year of earnings growth. I believe we are one of the very few office REITs to generate positive FFO growth in both 2024 and forecasted for 2025. Our best-in-class leverage and liquidity position remains intact.

Office fundamentals continue to improve with accelerated leasing and declining new supply, and we continue to deploy capital into compelling and accretive investment opportunities. We look forward to reporting our progress in the coming quarters. With that, let me turn the call 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 the star followed by the one on your touch-tone phone. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Blaine Heck from Wells Fargo. Your line is now open.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Great, thanks. Good morning. Can you talk a little bit more about the investment pipeline as you look into 2025? Have you found that the acquisition market has become more competitive? Does that change your strategy or the size of your pipeline at all? And I guess just generally, what's your confidence in being able to continue to make accretive investments this year?

Colin Connolly (President and CEO)

Good morning, Blaine. It's Colin. The pipeline remains, I think, very strong. And I think from Cousins' perspective, just stepping back as we look at the market and the opportunity today, I think fundamentals are improving. New supply is virtually nonexistent, and we're seeing leasing demand accelerate. And at the same time, the capital market still remains somewhat dislocated, with many of the private players still on the sidelines struggling with limited and, I'd say, relatively expensive secured debt.

So I think it's a particularly compelling time for Cousins to invest. And I think as we come out of this dislocated market, we are hopeful you're going to see more transactions, but I think the competition is still relatively limited. And we hope that we're, again, with an advantageous cost of capital, a preferred buyer for groups that are looking to monetize high-quality office.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Great. That's helpful. Can you just talk about the mix between kind of the opportunities on high-yielding debt versus operating properties that are in your pipeline?

Colin Connolly (President and CEO)

Yeah, certainly for us, the bias is typically equity positions. But again, we remain very constructive at this point in the cycle investing in trophy lifestyle office. But at this point in the cycle, sometimes the best way to invest from a risk-adjusted perspective at the right basis could be through debt. We've certainly demonstrated an openness and a willingness to invest in the debt part of the capital structure. If it's the quality of the asset, if we're comfortable with any outcome, we'll certainly look at those opportunities and potentially do more of them. But the pipeline today has kind of a wide variety of opportunities. Our long-term bias is as an equity investor, but again, at certain points in the cycle, us having the flexibility to invest across the capital structure, I think, is differentiator.

We'll continue to evaluate all opportunities, again, that are consistent with the long-term strategy of continuing to build this premier portfolio of the highest quality lifestyle assets in the Sunbelt.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Okay, great. That's helpful, and then just lastly, related to that, on the funding side, should we continue to expect kind of large deals if you have them, will be paired with an equity raise or do dispositions or any other sources of funding make sense at this point?

Gregg Adzema (EVP and CFO)

Hey, Blaine, it's Gregg. Good morning. We're going to look at it on a case-by-case basis. Right now, we can clearly invest on an accretive basis for these new acquisitions for using fresh capital, both debt and equity. We've proven that over the last few months. But again, it'll depend on kind of what we're looking at at the time we're looking at it. Sometimes it might make sense to sell something to fund it. But rest assured, whatever we do, these acquisitions, the first target is to be accretive and on a leverage-neutral basis.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Okay, great. Thank you all.

Colin Connolly (President and CEO)

Thanks, Blaine.

Operator (participant)

Thank you. Your next question is from Jeffrey Spector from Bank of America. Your line is now open.

Jeffrey Spector (Managing Director)

Great. Thank you. Just sitting back and thinking about all of the comments and how quickly the markets are improving and the accomplishments you had in 2024, I guess just sitting back when you talked about your plan for 2025 or I don't know if you could do a three-year plan, has anything changed in terms of the three-year plan or messaging to leasing this year? Thank you.

Colin Connolly (President and CEO)

Good morning, Jeff. It's Colin, and really, our plan remains unchanged, and it is firmly centered around continuing to execute the strategy of building the leading Sunbelt lifestyle office company with the best assets and the most resilient submarkets with the highest growth, and our plan around that, as I mentioned earlier, is kind of multi-pronged. We're going to continue to first prioritize organic growth within the portfolio, and that means driving occupancy back to more stabilized levels, and we feel like we're on a path to do that.

Secondly, in this environment, we are going to capitalize on external growth opportunities, and we certainly demonstrated that last year, and we think the environment is still positive for that and potentially still in the early innings coming out of a dislocated office capital market.Third, we're going to continue to maintain a fortress best-in-class balance sheet that gives us the flexibility to, again, capitalize on opportunities both in driving leasing market share as well as compelling and accretive new investments.

Jeffrey Spector (Managing Director)

Great. Thank you, and so to confirm, I know Kennedy also talked about the criteria for markets. In terms of your current positioning, Tampa, Phoenix, both around 8%, 9%, Houston 4%, I guess anything new on your approach to those markets? Thank you.

Colin Connolly (President and CEO)

Not at all. I think as we look at our current geographic exposure, we're going to remain focused on the Sunbelt, and I think we would hope to see our market share in certain markets like Tampa, as you mentioned, or Dallas, Nashville, Raleigh, Charlotte continue to grow over time, and so we'll stay focused and look at opportunities in Atlanta and Austin and places where we've got large share today, but we'd certainly like to grow our market share in some of these other terrific cities that we've been active in across the Sunbelt.

Jeffrey Spector (Managing Director)

Thank you. And then just last, can you talk about leasing year-to-date messaging conversations with, let's say, technology firms in your markets? Thanks.

Richard Hickson (EVP of Operations)

Sure. This is Richard. The momentum continues, and so we feel really good that from 2024, where we clearly had great volume, really proud of what we accomplished, that's absolutely carrying into this calendar year, and technology companies are part of that conversation without a doubt, so we're optimistic about continuing the momentum.

Jeffrey Spector (Managing Director)

Great. Thank you.

Operator (participant)

Thank you. Your next question is from Nick Threlkeld from Baird. Your line is now open.

Nick Thillman (Senior Research Analyst)

Hey, good morning. Maybe starting with Richard, just kind of digging a little bit more into the leasing pipeline, maybe just a little bit more commentary on the mix between new and renewals in that pipeline, and then also kind of the composition, the size of the tenants you're kind of looking at there, what's the average size, if there's some larger tenants included in that?

Richard Hickson (EVP of Operations)

Sure. So the mix in our pipeline is not terribly different than what it's been in recent quarters. I'd say it's a little bit lower than the 70% or so that we posted in 2024, but it's still skewed to the new and expansion side. Obviously, part of that is that we don't have a lot of expirations immediately ahead of us, so that's going to automatically kind of mix or skew the mix to new and expansion. And as far as the size of deals out there, it's all over the map. I'd say there's not really any kind of sea change happening. We're seeing customers of every size. We're seeing customers who are looking to upgrade space and want to move in quickly.

We're seeing some that are getting ahead of the curve, if you will, and may not have an expiration at another property a couple of years out and are looking to go ahead and take action. But there really hasn't been a big change in terms of the size of tenants that we're speaking with.

Nick Thillman (Senior Research Analyst)

Then you guys have made comments on assets like North Park willing to kind of put some leasing capital out the door to prioritize occupancy. Is there anything else in the portfolio that you're willing to kind of put dollars out and prioritize occupancy in? Or is that just one specific of that bottom 10% of assets that you guys have talked about in the past?

Colin Connolly (President and CEO)

Yeah, it is. North Park is one of our only suburban assets in a market that's had higher vacancy than some of our other submarkets. And so again, as I mentioned consistently, in certain situations, we are absolutely going to prioritize market share and driving occupancy, which ultimately leads to FFO growth. So we'll be cognizant of kind of that trade-off with concessions and capital.But I think in certain instances, when we've got a competitive advantage, we are going to use it, and we are absolutely focused on continuing to drive occupancy because that does ultimately translate into FFO growth.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

That's it for me. Thank you.

Operator (participant)

Thank you. And your next question is from Michael Lewis from Truist Securities. Is your line now open?

Mike Lewis (Cyber Security Group Manager)

Thank you. So your guidance does not include any acquisitions, dispositions, or development starts. It does sound like you're optimistic there will be acquisition opportunities, maybe even loan investment opportunities. Is a development start highly unlikely? And maybe you could talk a little bit about how far out of whack those economics are to start a build-to-suit and how high the rents would have to be, kind of get a sense about how far we are away from another start.

Colin Connolly (President and CEO)

Yeah, good morning, Michael. Again, we did not include any speculative transactions in our 2025 guidance, nor have we in the past because they are, again, by definition, speculative. Looking forward, I do think it's unlikely to see any development starts in 2025, but I'd tell you that we are beginning to have some conversations with large customers who are thinking about 2028 and 2029 expirations. And I'd say they are appropriately with their leasing brokers recognizing that there could be a pretty significant shortage of premier lifestyle space given the rebalancing in the market and virtually no new construction today or for the last several years.

So some of those conversations are picking up. I think Cousins is in a unique position, again, where we don't need to rely on any external financing or construction loans because I'd tell you that market is still fairly challenging. I, again, continue to believe that the near-term priority and opportunity in 2025 will be on acquisitions, but Cousins will certainly be positioned and prepared for the longer-term development opportunity, which I do think will materialize in the not-too-distant future.

Mike Lewis (Cyber Security Group Manager)

Okay, great. And then in Austin, I realize you're very well leased there. But do you think when NVIDIA makes a decision, there'll be some knock-on demand from that? And maybe that market could be closer to kind of recovering and coming back faster than we think, or do you think it's probably there's supply to mop up there, and it might be a little while before the market really recovers?

Colin Connolly (President and CEO)

I think you really need to drill down in particular submarkets. Broadly speaking, we are seeing demand begin to pick up in Austin. I'd say that's in many cases driven by technology companies coming off the sidelines. You are starting to see some relocation activity. There was a corporate relocation from California to Austin announced this week. That's very positive. I think the downtown submarket has a greater amount of new supply that the market will need to digest, and it will in time. Conversely, as you look at it, the Domain in our portfolio is almost 100% leased, and there's good activity out in the Domain. So I think that could likely lead to new opportunity on the development side probably sooner than most other submarkets.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. Your next question is from John Kim from BMO Capital Markets. Your line is now open.

John Kim (Managing Director)

Thank you. Now that the same and core mezz have been paid down, can you just discuss what your original expectations were? I know the guidance was that it was going to be paid down in December, but it seemed like a fair amount of work just for like a month and a half of income. Did you expect the mezz to extend past a couple of months?

Colin Connolly (President and CEO)

Good morning, John. It's Colin. To clarify, it was a whole loan at Saint Ann Court that we purchased. And I'd say when we made that purchase, the outcome of that was uncertain. But as I commented earlier, Cousins were focused on investing in Sunbelt lifestyle office assets, and Saint Ann Court is clearly that. It is a top-tier asset in Dallas, and we felt like we were investing at a basis and a return that was highly attractive. And ultimately, from our perspective, we were comfortable with any outcome there. Ultimately, the outcome was the sponsor paid it off and recapitalized that asset. They obviously have a very constructive long-term view of the property, and we wish them well.

John Kim (Managing Director)

Can you comment further on how much you expect to invest in mezz this year? I know it's not incorporated in guidance, but do you expect similar or greater amounts?

Colin Connolly (President and CEO)

John, the reality is it will depend. And again, we're opportunistic in how we invest. Again, I think our bias is certainly to buy fee simple trophy acquisitions like we did in the fourth quarter. But from time to time, when opportunities present themselves at this part of the cycle, the best risk-adjusted return and access point is in the debt capital part of the stack. My anticipation or expectation would be our investments there will likely be modest on the debt side and really more of a focus on long-term ownership. But again, we will be opportunistic. But longer term, we don't have plans to build a large debt book.

This is just a unique point in the cycle. And when those opportunities present themselves, we'll capitalize.

John Kim (Managing Director)

Okay. And on Sail Tower, great asset and acquisition and credit. What's the latest on Google's use of the building, the physical occupancy of it? And do you expect some of it to come back to the sublease market?

Kennedy Hicks (EVP and Chief Investment Officer)

Hey, John, this is Kennedy. So they are in the process of evaluating all of that. I think we do expect that they're beginning to move people in this year and then determining they do have a little bit of space on the sublease market. There's been a lot of interest in that space. So I think they're trying to figure out what makes sense relative to their long-term footprint. But they do plan to occupy, and they've begun their build-out process as well.

Colin Connolly (President and CEO)

Yeah. John, I'd just add over time, if Google does decide to shed some of that space or sublease some of that space, we would view that as a potential opportunity, again, to multi-tenant some of that building over time and hopefully do it in accretive transactions and capitalize on the mark-to-market. And we've had kind of similar successes. The IBM Meta deal last year was an example of that. But I think that could create some long-term opportunity, and we'd be interested in those discussions.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. And your next question is from Steve Sakwa from Evercore ISI. Your line is now open.

Hey, this is Thomas. I'm for Steve. Congrats on the quarter again, and thanks for taking my question. One quick question I had on the pipeline specifically for the new house office component. Could you maybe talk about how touring for that specific one has maybe changed or picked up during the quarter? And for tenants that decide not to sign with you, what do you think the reason is? Is that conditions or rate or term or maybe finding other space that they're interested in? Just some color there would be great to understand. Thank you.

Kennedy Hicks (EVP and Chief Investment Officer)

Sure. This is Kennedy. As Richard mentioned, we are in late-stage lease negotiations with a user to take almost another floor. So we continue to feel good about our floor to a quarter in terms of leasing activity. And I would say the feedback that we're getting from the market is really positive. I mean, it's a unique environment with every week that goes on. There's more retail that's opened. More, as we've talked about, there's a lot more people living in the apartments. We've gotten really good feedback from the resident experience there.

So we continue to see good tour activity. I'd say if we don't convert those tours to leases, it's usually just because that particular user doesn't want this high end of a space. And so we are at the top of the market in terms of rents. And so certainly, people love to come see it, and then sometimes they ultimately decide that that's not in their cards economically. But we've had a good success in conversions and feel good about the ongoing interest in pipeline.

I appreciate that. And maybe one quick follow-up question. What are factors you're watching out for in terms of guidance that would bring you to the lower end and also factors that would bring you to the higher end as we move through the year? What are factors we should also think about to kind of stay ahead of those ones as well?

Gregg Adzema (EVP and CFO)

Sure. It's Greg. I mean, the largest factor that we face, and we've faced it in 2024 as well, are interest rates, both on the short end and on the long end. So if we're moving up or down, we do have 15% of our debt floating rate. That's right within kind of the range of what we've indicated we like to have, so it's not high or low. We're lowly levered, so typically that impact is less than it would be if we had a little more leverage on the balance sheet. But a change in SOFR could move our results around. Our current base case that we provided in the guidance, the midpoint assumes no rate cuts in 2025.

And then also rates in the long end. I do have to refinance at some point in 2025, or I'm likely to refinance at some point in 2025, this $250 million unsecured note that we have maturing in the summer. And that could move around as well, and that could have an impact. As Colin stated earlier on, and I stated in my prepared remarks, we don't have any speculative transactions, so there's no risk from that. And then, as Richard talked about earlier on, our leasing and rate budget for 2025 is consistent with what we've done in the past, so we feel comfortable with what we've provided there.

Perfect. Thank you. That's for me.

Operator (participant)

Thank you. And your next question is from Upal Rana from KeyBank Capital Markets. Your line is now open.

Upal Rana (Senior Equity Research Analyst)

Great. Thank you. What seems to be the holdup with the Time Warner lease at Domain Point? Are they looking at other spaces, or are they trying to determine how much space they still need?

Richard Hickson (EVP of Operations)

This is Richard. It's the latter. We've been engaged with them for a long time now, to your point, but we're really working through what their needs are longer term.

Upal Rana (Senior Equity Research Analyst)

Okay. Great. That was helpful. And then I was wondering, could you give a sense of what your exposure is to GSA leases? And if minimal, how do you think what's going on there could potentially impact office leasing within your markets?

Richard Hickson (EVP of Operations)

The exposure to GSA for Customs is de minimis. I think we have one small GSA lease at Fifth Third Center in Charlotte and one other in North Park in Atlanta, but it's really not much to speak of.

Colin Connolly (President and CEO)

Yeah, and I think in Charlotte, it's 5,000 sq ft to a federal judge. I think broadly speaking, I think it'll have very little impact on the leasing for our lifestyle office buildings. I'd say GSA leases within our markets are, again, fairly limited in the submarkets that we operate in. And I'd say by and large, they're in lower quality and older vintage assets. I think some of which will likely be candidates for very significant renovations, repurposing, or even in some cases, suburban teardowns.

Upal Rana (Senior Equity Research Analyst)

Okay. Great. Thank you.

Operator (participant)

Thank you. And your next question is from Dylan Burzinski from Green Street. Your line is now open.

Dylan Burzinski (Senior Analyst)

Good morning, guys. Thanks for taking the question. Appreciate your comments on sort of the acquisition pipeline remaining relatively robust, but just wanted to sort of get you guys' opinions on sort of bidding trends and any new buyers coming to the market that may prove competitive to you guys. Just sort of looking at anecdotes, right? The most recent one being John Gray and Blackstone effectively calling bottom in a high-quality office. You look at CMBS issuance this year to date for office at relatively high levels compared to recent history.

So just trying to get a sense for if you guys are starting to see more and more buyer activity or interested parties come into some of these transactions that you guys are looking at.

Colin Connolly (President and CEO)

Yeah. Certainly, we pay attention to the competitive landscape and certainly noticed or noted those comments coming out of Blackstone and our reaction. That was very validating of what we've been trying to do in 2024. And I do think you'll start to see some very well-capitalized players see the opportunity and enter the market. I would say we have not seen any of those groups really in any scale yet in our Sunbelt markets. I think to a certain degree, that's a function of these large groups are looking to deploy a lot of capital in single transactions or even larger transactions and tend to then have a bias towards markets like New York.

And so our sense is that will likely be the focus of some of those groups.But over time, as the markets fall and existing private groups get out from under their legacy issues, the market absolutely at some point will become more competitive. But our hope is in the near and intermediate term, Cousins will still be a preferred buyer, I'd say, with arguably the best cost of capital relative to our private peers as well as our other public peers. And so we want to capitalize on that time.

Operator (participant)

Thank you. Your next question is from Anthony Paolone from J.P. Morgan. Your line is now open.

Anthony Paolone (Executive Director)

Thanks. Just a couple left for me. First, with regards to OneTrust and B of A space, can you give us any updated thoughts on either traffic, thinking around the spaces or building or anything updated there?

Gregg Adzema (EVP and CFO)

Sure. So I'll start with OneTrust. As we've mentioned in the past, it's modern, great space that OneTrust is leaving us with. We've had actually really encouraging activity in the past couple of months. Nothing that we can say is imminent, but certainly some very good interest. So we remain encouraged that at some point that space is going to be very attractive for the right user as largely plug and play and ready to go. With regard to Fifth Third Center in that space, again, the bank doesn't depart the space until the end of July of this year. We are very much underway in the final process of the redevelopment planning, and we'll start that as soon as we possibly can this summer.

And I think that will generate a lot of buzz and activity. Charlotte has some very interesting larger requirements floating around at this point. They're all early stage and not necessarily fast-moving, but we view that the demand equation in Charlotte is encouraging and again, like I said in my remarks, the quality of the redevelopment at Fifth Third Center is going to be second to none, and it should attract a lot of demand from lifestyle office users.

Anthony Paolone (Executive Director)

Okay. And then just second for Greg, just on a numbers matter, for Neuhoff, can you give us a sense as to what the FFO impact is from that asset in 2025 versus, say, where it may be once it's stabilized? I can't recall if all the interest stopped being capitalized or if the OpEx is flowing through. Just trying to wonder what that impact is this year.

Gregg Adzema (EVP and CFO)

Sure. We don't provide specifics on a property-by-property basis, but what I can tell you is that we ceased capitalizing interest on the apartments in the summer of 2024. We ceased capitalizing interest on the adaptive reuse office in October of 2024. And so all we're capitalizing interest on in 2025 is the new building for office, which we stopped this summer, and the retail, which will stop in the fall. So as you know, simple algebra, if you stop capitalizing interest and you're not stabilized yet, odds are it's not a very favorable impact to your earnings. And so it's a bit of a headwind for us in 2025 that'll clear up by the end of the year. But we already started to experience that in late 2024.

Anthony Paolone (Executive Director)

Okay. Thank you.

Operator (participant)

Thank you. Your next question is from Brendan Lynch from Barclays. Your line is now open.

Brendan Lynch (Director)

Great. Thanks for taking my questions. I wanted to get a sense of how many more assets like Sail Tower, Vantage South End, are on the market that are new, well-leased, kind of fit your A-plus criteria that you could potentially pursue?

Colin Connolly (President and CEO)

Again, we have a list of assets that we're interested in that meet kind of the criteria for us in continuing to build and grow our Sunbelt lifestyle portfolio. I'd say at the moment, officially, there are not a lot of assets that qualify there as, I'd say, officially on the market. But that doesn't mean that Kennedy and her team aren't hard at work and having a lot of conversations. And our hope, like last year, Vantage South End was not on the market. And the Sail Tower asset had been on the market and had been a bit sideways, and we were able to kind of come in.

And so whether there are assets that are officially on the market or not, our team will be working hard and are hopeful to source new opportunities. So we'll continue to stay focused on that.

Brendan Lynch (Director)

Are there any markets that you would be willing to enter that you're not already active in yet?

Colin Connolly (President and CEO)

We're going to, again, remain focused on the Sunbelt, and we don't feel opportunity constrained in our Sunbelt markets. Again, over time, we'd certainly like to see kind of our market presence and share grow in some of our existing markets like Dallas and Nashville, Charlotte, Raleigh, Tampa. I mean, these are all markets that over time, we could have a greater, I think we could have a greater market share.

Brendan Lynch (Director)

Great. Thanks. That's it for me.

Operator (participant)

Thank you. Your next question is from Blaine Heck from Wells Fargo. Your line is now open.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Great. Thanks for taking the follow-up. It seems at this point like you guys have stopped providing same-store NOI and occupancy guidance. So I guess without asking the overall ranges for the full year, can you talk about any recent trends in the leasing pipeline and the general drivers of same-store NOI and occupancy throughout the year and cadence of both? Obviously, you guys have been clear about Bank of America, but color on any other nuances would be helpful. And lastly, any view on where occupancy might end up at the end of this year relative to the end of 2024 would be helpful.

Richard Hickson (EVP of Operations)

Sure. This is Richard. I can tackle the occupancy side of that. So we'll start the year fairly stable, and it's like we've talked about, the big change is going to come with B of A's expiration in the third quarter, so the end of July, so on a weighted average basis, that'll kind of filter through the system in the third quarter. We don't give specific guidance, but we do feel confident that we're going to be able to trough there in the second half of this year and begin to build back occupancy and certainly into 2026.

Blaine Heck (Executive Director and Senior Equity Research Analyst)

Okay. Great. Thanks.

Operator (participant)

Thank you. And your next question is from Dylan Burzinski from Green Street. Your line is now open.

Dylan Burzinski (Senior Analyst)

Thanks for taking the follow-up. Just wanted to get you guys' view on concessions and potential prospects for net effective rent growth. Obviously, headline vacancy across a lot of your markets is still relatively high, but your portfolio is well-leased. If you look at Class A trophy vacancies across your markets, they're in a much better shape. So just trying to get a sense for when you guys think you'll be able to start to push net effective rent growth across the portfolio.

Richard Hickson (EVP of Operations)

We've had good luck, thankfully, despite pressure mainly in the area of TIs. We've had good luck building and growing net effective rents over time, especially year over year for 2023 to 2024. We think we can continue to do that effectively. Like you said, demand for the lifestyle segment is vastly different than the broader office market. We feel good that we're going to be able to execute similarly to how we've executed in the recent past.

Colin Connolly (President and CEO)

It'll be situation by situation. Again, I think at North Park, again, as I've mentioned, we'll be much more aggressive as it relates to concessions. So if we do an outsized amount of leasing at a building like that, that could skew a quarter-to-quarter number. But again, we have kind of very few assets like that. And I think, generally speaking, for our kind of trophy lifestyle urban buildings, we're seeing the dynamic begin to shift to more of a in the owner's favor than it has been as that market is expected to really tighten over the next couple of years.

Dylan Burzinski (Senior Analyst)

Appreciate that. Thanks, guys. Have a good one.

Colin Connolly (President and CEO)

All right. Thanks, Dylan.

Operator (participant)

Thank you. There are no further questions at this time. I will now hand the call back to Colin Connolly for the closing remarks.

Colin Connolly (President and CEO)

Thank you all for joining us this morning. We appreciate your time and interest in Cousins Properties. If you have any follow-up questions, please do not hesitate to reach out to Gregg Adzema or Roni Imbeaux. I hope everyone has a great weekend.