Cousins Properties Incorporated

Good morning, ladies and gentlemen, and welcome to the Cousins Properties second quarter 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, August 1st, 2025. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead.

Thank you. Good morning, and welcome to Cousins Property's second quarter earnings conference call. With me today are Colin Conley, our President and Chief Executive Officer, Richard Hickson, our Executive Vice President of Operations, Greg Azema, our Executive Vice President and Chief Financial Officer, and Kennedy Hicks, our Executive Vice President and Chief Investment Officer. The press release and supplemental package were distributed yesterday afternoon, as well as furnished on Form 8K. 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 security 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 Collins.

Thank you, Pam, and good morning. Before I begin my remarks, I want to take a moment to remember the extraordinary life of Tom Cousins, who passed away this week at 93 years old. When Tom founded Cousins Properties in 1958, he had a bold vision for real estate development rooted in integrity and purpose. His leadership helped shape not only the Atlanta skyline, but also the broader residential and commercial real estate landscape across the Sunbelt. Tom's impact extended far beyond the buildings he developed. He believed deeply in giving back and in the power of business to serve communities. His transformation of Atlanta's East Lake neighborhood is a powerful example of this belief. With Tom, It was not just what he did that was special. It was also how he did it. His legacy lives on in the culture of our company. It is an honor that Cousins Properties is part of his remarkable legacy, and we will miss him dearly. On behalf of all of us, I extend our heartfelt condolences to the Cousins family.

Now, turning to the quarter,

We had a strong second quarter at Cousins. On the earnings front, the team delivered 70 cents a share in FFO, which was one cent above consensus. Same property net operating income increased 1.2% on a cash basis and 1.6% year-to-date. Leasing remained very strong. We completed 334,000 square feet of leases during the quarter, and remarkably, 80% of that was new or expansion leases. Cash rents on a second-generation space increased 10.9% in the quarter and 5.4% year-to-date. These are remarkable results. Post-quarter end, we purchased The Link, a trophy lifestyle office property in uptown Dallas, which grows our presence in a strategic market. We plan to fund the acquisition with excess proceeds from our unsecured note offering in June. proceeds from the settlement of common shares previously issued on a forward basis under our ATM program, and or potential future asset dispositions. Given the solid second quarter performance, we have increased the midpoint of our guidance to $2.82 a share, which represents 4.8% growth rate over last year. I believe there's a perception that an office company cannot grow earnings We are proving that wrong, and for the second consecutive year, and we are excited to do it. Before discussing our strategy in more detail, I will start with a few observations on the market. While uncertainties over tariffs and interest rates remain, we continue to see encouraging signs in the Sunbelt lifestyle office market. Leasing demand is healthy. New-to-market activity in Atlanta, Austin, Dallas, Charlotte, Tampa, and Phoenix is accelerating. New development activity remains constrained. Inventory removals from conversions and demolitions are also accelerating. The net result is a declining supply of office at the exact same time demand is growing. The market is resetting and tightening is underway. Net absorption has now turned positive and vacancy levels are on the decline. Not surprising, the investment sales market is opening and more private investors are actively pursuing office acquisitions. This is an excellent setup for Cousins to advance our strategic priorities. We remain highly focused on the following goals, growing earnings, cashflow, and NAV by increasing occupancy, reducing CapEx, and opportunistically investing in compelling new opportunities. Second, continuously upgrading the quality of our lifestyle portfolio and enhancing our geographic and industry diversification, and finally, maintaining our fortress balance sheet. Aggressively leasing space and identifying compelling investment opportunities are the key drivers to advance these strategic priorities. To fund new acquisitions and select developments, in addition to other potential alternatives, we will likely prioritize recycling capital from our few remaining older vintage properties that have a lower occupancy and or higher CapEx profile. We will also consider selling non-office, non-core land. Given our past recycling activity, we are fortunate to have few properties today that do not meet our lifestyle office definition. But as disciplined owners, we always have a bottom 10%, and we will remain active as we upgrade the quality and diversification of the portfolio while growing earnings. At Cousins, we've been running this play for years. Since 2019, we have acquired $2.3 billion of lifestyle office properties, started approximately 600 million of new developments, and sold 1.3 billion of non-core assets. Important to note, we executed these transactions and significantly upgraded our portfolio with the headwinds of a global pandemic and a rising interest rate environment. Yet, we still grew Core FFO by 6.1% and Core FAD by 7.3% over this timeframe, and did so approximately leverage neutral. This is a tremendous accomplishment and highlights the capability of our platform. We are excited about what is ahead for Cousins. The office market is rebalancing. We are growing earnings, both organically and externally. while also improving an already terrific portfolio. The investment sales market is accelerating, and we believe private market pricing will soon provide a boost to public market valuations. 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? Thanks, Colin.

Good morning, everyone. Our operations team closed the first half of the year with another solid quarter. In the second quarter, our total office portfolio end of period leased and weighted average occupancy percentages were 91.6 and 89.1% respectively. As expected, both were down compared to last quarter, primarily due to the known move out of One Trust at Northmark in Atlanta. Without the One Trust move out, occupancy would have been down only about 20 basis points. While not reflected in second quarter results, Bank of America and Charlotte has now also expired. Both of these large expirations have been anticipated for a very long time, so our expected occupancy trends remain unchanged. Specifically, we still see occupancy declining through the third quarter of this year and then beginning to build back toward the end of the year and beyond. A major driver of our occupancy projections continues to be our best in class near-term expirations profile. Our team continues to do great work in this area, and as of second quarter end, we only had 8.1% of annual contractual rent expiring through the end of 2026. As of today, we only have one customer larger than 100,000 square feet expiring through 2026, which is Samsung. for 123,000 square feet at Briar Lake Plaza in Houston at the end of November 26. During the second quarter, our team completed 41 office leases, totaling 334,000 square feet with a weighted average lease term of 7.9 years. Importantly, 268,000 square feet of our completed leases this quarter were new and expansion leases, representing a very impressive 80% of our activity and directly in line with our three-year quarterly run rate. While second quarter total volume was down sequentially, I would note that our total leasing volume for the first half of this year is nearly 10% higher than the first half of 2024. We are very pleased with our year-to-date leasing activity. Beyond our completed activity, our leasing pipeline remains very healthy at all stages with no signs of slowing. In fact, our combined early and late stage pipeline is currently at its highest level since we began consistently tracking this metric. With regard to lease economics, this quarter was one of the best in Cousins history. Second-generation cash rents increased yet again in the second quarter by a strong 10.9%. All but one of our markets with second-generation activity saw roll-ups in rent, with Atlanta being the largest positive contributor on a weighted average basis. Our average net rent this quarter came in at $40.95, a 14% increase over last quarter, and the second highest quarterly level in our company's history. This quarter, average leasing concessions, the sum of free rent and tenant improvements, were $9.42, resulting in an average net effective rent of $28.35, also the second highest quarterly level in our company's history. I want to make an important point about this quarter's economics. The few times in the past when we had delivered net effective rents around this level, it was typically driven by one market or one sizable transaction. That is not the case this quarter. The fact is that our net effective rents were solid in every market this quarter, which is a testament to the broad strength of our markets and lifestyle office assets. Touching on our markets, JLL noted that Austin saw healthy demand for office space in the second quarter, with market leasing volume reaching 1.2 million square feet, which was 11.4% above the three-year quarterly average and up 32% year-over-year. They also noted that sublease availability was stable sequentially and down over 14% relative to mid-2024. We signed 79,000 square feet of leases in Austin in the second quarter, of which 71% were new leases. and our very stable operating portfolio currently stands at 95.3% least. A particular note is that with recent strong demand in the southwest submarket, the Austin team was able to take our 619,000-square-foot terrace project to 90% least for the first time since 2021. In Atlanta, the office market continues to show strength at the top end of the market while low incoming supply persists. JLL has also stated that office inventory decreased by 2.9 million square feet this quarter, which is the largest ever quarterly reduction recorded in the Atlanta market. This quarter also represented the first quarterly positive net absorption in 10 quarters. We signed a strong 115,000 square feet of leases in our Atlanta portfolio this quarter, including over 36,000 square feet of expansions across three of our Buckhead projects. And as I already alluded to, the Atlanta team also rolled up rents an impressive 17% this quarter. Turning to Charlotte. According to the Bureau of Labor Statistics, Charlotte has been the leader among the largest domestic markets in office using job growth for the better part of this year. Major brokerage firms are citing growing completed leasing activity, decidedly positive year-to-date net absorption in the trophy segment, a robust level of tenants in the market, in a new construction pipeline that now sits at zero. The fundamental backdrop in Charlotte could not be much better, and the prevailing opinion is that the market is likely to see a shortage of high-quality, large blocks of available space in the near future. This is one reason why we continue to be very excited about our redevelopment projects at both 550 South and Fifth Third Center and Uptown. We also have an important announcement about Fifth Third Center, which is that we have completed an agreement with Fifth Third Bank, a valued and long-term customer at the project, allowing Cousins to, among other things, rebrand the property. Going forward, the property will be branded as 201 North Tryon, and we are confident this new name will appeal to a much broader range of potential new customers, especially those in the financial services sector. In Phoenix, Class A net absorption remained positive across the MSA, with vacancies moving down across nearly all submarkets. I'm pleased to report that our team completed 67,000 square feet of leasing this quarter, including a 39,000 square foot new lease with a financial services company that Hayden Ferry won. The market reaction to our Hayden Ferry redevelopment continues to be very encouraging. In Tampa, CBRE reports that total vacancy fell 50 basis points this quarter, And JLL notes that new developments and rising rents in Trophy and Class A properties highlight continued interest in high-quality office space, while Class B properties experience negative net absorption and further rent declines. Tampa leasing velocity is 12.5% ahead of last year, with 2.5 million square feet completed in the first half of the year. Our Tampa team signed seven leases totaling 46,000 square feet, all of which were new leases, and six of them have expected commencements in 2025. Our Tampa portfolio was 95.1% leased as of quarter end. Finally, we continue to be pleased with the progress in our new Hoff mixed-use development in Nashville. The apartment component of the project was 78% leased as of the end of the quarter, and based on our current velocity, we expect it to be stabilized by the end of the year. commercial component is 51% leased, and I'm pleased to report that we have seen a recent pickup in tour activity. We are now anticipating stabilization of the commercial space in the third quarter of 2026, which is more reflective of the commencement requirements we are seeing in our leasing pipeline. As always, I want to thank our operations team for your great work, which has positioned us well as we look to the second half of this year.

Kennedy? Thanks, Richard. In addition to our strong operating quarter, we are excited to announce another acquisition. Earlier this week, we closed on the link in Uptown Dallas, a trophy asset that fits squarely into our lifestyle Sunbelt office strategy. We acquired the property for $218 million, or $747 per square foot, pricing that represents a discount to replacement cost and is immediately accretive to earnings. The building's appeal is evident from its quick lease up and the types of customers it has attracted. After it delivered in 2021, the 25-story building leased up within 12 months, featuring a stellar rent roll of professional service firms, including Houlihan Loki, PMG, Newmark, and McGuire Woods. Today, the asset is 94% leased, with a weighted average remaining lease term of 9.3 years. Furthermore, All of the customers are fully utilizing their workspaces, spaces that they have made significant investments in with a focus on employee experience. The building offers a full complement of first-class amenities and enjoys a walk score of 94. Clearly, from a quality and profile perspective, the link is an excellent fit for our portfolio. From a market perspective, we have now planted a flag in uptown Dallas. one of the strongest and most dynamic submarkets in the country. Per CoStar, Dallas as a whole has experienced 1.3 million square feet of positive net absorption in the past 12 months. Uptown is receiving an outsized share of demand thanks to the quality of its inventory and its status as the most dense and amenitized submarket. The link sits in the heart of Uptown, offering great vehicular access and numerous walkable dining and hotel options. It is also just two blocks from Goldman Sachs' state-of-the-art urban campus, which upon completion is set to house 5,000 workers. Finally, as mentioned, the financial profile of the link is compelling and immediately accretive to earnings. We acquired the link at a basis below today's replacement costs. The initial cash yield over the next 12 months is anticipated to be 6.7%, with a gap yield of 8.3%, a spread driven by over nine years of remaining lease terms, and in-place rents that are nearly $20 per square foot below what could be achieved today. In the past nine months, we have invested over $1 billion in trophy lifestyle office buildings. Going forward, we intend to continue to execute on that core strategy as we identify Sunbelt investments that are consistent with the quality of our portfolio and will allow us to grow in an accretive manner. As the capital markets continue to open up, we will also explore capital recycling opportunities with an eye towards continuously upgrading our portfolio composition and increasing cash flow. I will now turn the call over to Greg.

Thanks, Kennedy. I'll begin my remarks by providing a brief overview of our results. Then I'll spend a few minutes on our same property performance before moving on to our capital markets transactions. and our balance sheet, and finally closing my remarks by updating our 2025 earnings guidance. Overall, as Colin stated up front, our second quarter results were outstanding. Second-generation cash leasing spreads were positive for the 45th straight quarter. Same property year-over-year cash NOI increased, and leasing velocity was strong. Focusing on same property performance for a moment, gap NOI grew 3.2%, and cash NOI grew 1.2%, during the second quarter compared to last year. This continues a string of positive same property numbers that began in early 2022. I did 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 receive actual assessments from the taxing authorities and push the quarterly numbers around quite a bit So it's always best to use longer timeframes when looking at property tax numbers. For example, the same property tax expenses that ran through our P&L were up 21.9% in the fourth quarter of 24 over the previous year. They were down 12.1% in the first quarter, and they were down 22.4% this quarter. It's a lot of movement as prior accrual adjustments are made. However, for all of 2025, we currently forecast gross property taxes in our same property portfolio to be up 2.8% over the prior year. However, net of accrual adjustments that I just discussed, we forecast a 4% decline actually running through our P&L for the year. Moving on to our capital markets activity, we completed our third investment-grade bond offering during the second quarter, issuing $500 million of notes at an initial yield of 5.25%. Proceeds were used to pay off an unsecured note that matured on July 6th and to partially fund our acquisition of the link that Colin and Kennedy discussed earlier. We now have three tranches of unsecured notes outstanding, a five, seven, and 10-year maturity with a total face value of $1.4 billion. We also sold 803,000 shares of common stock on a forward basis under our ATM program during the second quarter. at an average gross price of $30.47 per share. Year to date, we have sold 2.9 million shares at an average price of $30.44 per share. None of these shares have yet settled. Looking at our balance sheet, net debt to EBITDA remains an industry-leading 5.1 times. Our liquidity position is strong, and our debt maturity schedule is well-laddered to accommodate continuing to efficiently access the unsecured bond market. I'll close by updating our 25 guidance. Currently, we anticipate full year 2025 FFO between $2.79 and $2.85 per share, with a midpoint of $2.82 per share. This is up three pennies from last quarter and is up 13 cents, or as Colin discussed earlier, 4.8% over our 24 results. The increase in FFO guidance is driven by accretion from our acquisition of the link, higher parking income, and better than forecast execution on the unsecured note that we issued in June. Our guidance continues to assume no SOFR cuts in 2025. As Colin stated up front, we're funding the link acquisition with excess proceeds that we raised in our recent unsecured note offering, as well as proceeds from the settlement of a portion of the shares we have previously issued on a forward basis under our ATM program or property, I'm sorry, proceeds from potential asset sales. Our guidance assumes the future settlements of approximately 2.3 million of these previously issued shares. However, we may ultimately use some potential asset sales instead of or in combination with the settlement of shares. We'll know more on this topic on our next earnings call. Bottom line, our second quarter results are excellent and we are raising the midpoint of our full year earnings guidance. Our best-in-class leverage and liquidity position remains intact, and despite recent macro uncertainty, Sunbelt Office fundamentals remain solid. And although it's not in our guidance, we anticipate the potential to continue deploying additional capital into compelling and accretive investment opportunities. We look forward to reporting our progress in the coming quarters. With that, I'll turn the call back over to the operator.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any case. Your first question is from the line of Anthony Paulone from JP Morgan. Please go ahead.

Thank you and good morning. First question relates to the link and was wondering if you can give us a little bit more context around the underwriting, going into the 6-7 cash, like how do you think about the growth at the asset, replacement costs, and just how you kind of thought about getting to the value you got to?

Good morning, Tony. It's Colin. Juan, we're thrilled to plant a flag in uptown Dallas, which I think is going to be one of the fastest growing submarkets in the country. And I think for us, looking at that particular situation with rents significantly below market and a terrific rent roll with you know, good weighted average lease term. And I should also add very little CapEx needs. You know, we were excited. And I think anytime we can identify a compelling investment opportunity with that type of profile that continues to upgrade the quality of our portfolio and do that in an accretive manner on a leverage neutral basis and actually do it below replacement cost checks all the boxes for us.

Okay. And then just more broadly, can you talk about just how much you are actually looking at right now in terms of potential acquisitions and just how attractive the market is with that deal flow?

Are you seeing a lot of things that you have interest in buying?

Hey, it's Kennedy. Yeah, we're continuing. We're always evaluating opportunities that are on market and off market. And do feel like there's going to be more that fits our criteria coming in the second half of the year. So we're encouraged and think that the capital markets are continuing to open up and should continue to provide acquisition opportunities for us.

Okay. Thank you. Your next question is from the line of Yana Goan from

Bank of America, please go ahead.

Thank you. Good morning. And congrats on the strong releasing spreads. And thanks for calling out Atlanta for the 17% increase. Can you tell us which is the one market that saw a decline? And was that just kind of the prior rents deal specific?

Sure. This is Richard. So yeah, broad-based strength, really, really excited about our ability to post a number like that that had broad support, the one market that did not post roll-ups was Phoenix. And we really only had one lease in that market this quarter that qualified in our definition of second generation, and it was just a tough comp.

Thank you. And then, sorry to jump around, then on the non-core dispositions, can you maybe talk about, you know, a range of how much is being marketed and kind of what you're seeing in terms of interest and what type of bidders are out there?

Yeah, any dispositions that we do are going to be driven by new investment opportunities that we identify. And so I wouldn't characterize it as a broad-based disposition program. I'd say we see an opportunity with an improving market, an improving investment sales market, to hopefully source more compelling opportunities And as we do so, we increasingly see dispositions as a potential source of capital. And as we do so, we will prioritize the handful of properties that we have that are perhaps an older vintage and have a higher CapEx profile. And as I said, we might also include some kind of non-core land. And I would characterize non-core land for us as land that perhaps has a higher, better use most likely in the multifamily arena.

Thank you.

Your next question is from the lead line of Steve Sacco from Evercore ISI. Please go ahead.

Yeah, thanks. Good morning. Could you maybe just spend a little time talking about Neuhof? You know, I guess that seems to be one project that hasn't had as much traction as some of the other markets and assets. Is it something about that asset specifically? Is it something about Nashville? Or is it just something about tenants needing to pick up and move? And that's kind of the more challenging issue right now.

Hey, Steve. It's Kennedy. We remain really excited about Newhoff. As Richard mentioned, the apartments continue to lease up at a really nice pace. And we're encouraged by the renewals that we've seen now as well as we're starting to hit our first renewal cycle. Furthermore, in the past month or so, we've opened several food and beverage options that have been really well received by the market and gotten a lot of great buzz. So the project just continues to get more exciting and kind of more interest from the market. On the office side, we did see a little bit of a lull earlier in the spring, but we've seen the pickup in tours and requests for proposals in the past. 30 or 45 days. So we're encouraged by that. I think it's just a little bit of function of timing and then who's out in the market and wanting to pay new construction rents as well. But I think in general, we remain really excited and encouraged by the progress and the momentum.

Okay, thanks. And second question, I mean, it may be a little bit far off, but as you think about new construction opportunities, I guess, which markets are you most excited about, given kind of the land that you have? And I mean, maybe where is there the strongest demand for potentially new builds?

Yes, Steve, it's Colin. Again, broad-based, we're seeing really attractive demand across all of our markets, but as it relates to new development, I think a key metric is kind of where our pop into the market rents today relative to replacement cost rents. And, you know, if I had to kind of rank where I think some of those opportunities could emerge, you know, certainly out at the domain in Austin, where we've got quite a bit of really attractive land in the heart of the domain, you know, our two and a half million square feet out there is essentially 100% lease with no space available for sublease. and you know demand so that's the market where i think you could justify uh a rent could be achieved um and then you know the market where we just entered in in uptown dallas i think is another market where uh you are seeing some uh leases executed north of seventy dollars a square foot on the net basis and as you get into that into that range dallas is not far off And then, you know, I tell you, we're starting to see some opportunities in even in markets like Atlanta, where perhaps there's a greater spread between top of market rents today and new development rents. But in certain instances, you've got large customers that want what they want, and they might want new and they might be comfortable paying whatever it costs. And so, you know, that that's encouraging to us to see some of that activity, you know, start to start to show up in places like Atlanta.

Great. Thank you. Thanks, Steve. The next question is from the line of John Kim from BMO Capital Markets.

Please go ahead.

Thank you. I think, Colin, you mentioned at Link there's a good mark-to-market, and I was wondering if you could just quantify that. And also, what are the opportunities as far as increasing occupancy at the market rents? and if there's any upside to the parking that's there.

Hey, John, it's Kennedy. As I mentioned in my prepared remarks, there's about a $20 spread between in-place rents and where we think rents can be achieved today. There's basically two office spaces that are available. One is fully built out of the spec suite, so we expect to be able to lease that one quickly, and there's good interest in that currently. We'll probably look to explore building a spec suite out in the other one as well. So I feel like that's a little bit of an upside right there. And then have been encouraged by the parking growth as well. So as that neighborhood continues to evolve and grow and just with the Goldman Sachs campus coming in, I do think there's some opportunity to keep pushing parking. in the near term. But then again, over the long term, we just really like the basis and the caliber of the tenancy and the below market rent story.

And John, I want to make sure to highlight, as Kenny just mentioned, the in-place rents being $20 a square foot below market. And that's a building that just delivered a handful of years ago. So I think it's important for all of our investors to kind of step back and think more broadly as we look across in our footprint and we continue to share that there's a shortage of high-end lifestyle office space coming to most markets. And, you know, a $20 increase in rental rates in a short period of time, you know, can happen. And I think you're going to, we're getting closer to that happening in more of our footprints.

And then you mentioned there's more private buyers looking at office, wondering what competition was like for this asset, and if you see cap rate compression in some of the markets that you're looking to acquire in.

Yeah, so this one was softly marketed really over the past couple of years. I think ultimately the developer's goal was to sell some stabilization, but they wanted to wait until a better time in the capital markets environment. So we had developed a relationship with them. And as their timing needs evolved, I think they viewed us as a very good buyer that could move quickly and that they would get comfortable with the execution. So This one was a little bit different. There are a lot of investors that are looking at Dallas opportunities right now, and that's private equity firms, family offices, et cetera. So certainly it's a market that's getting a lot of attention. In terms of cap rates, I mean, I think just the dynamic of having more equity, looking at office, more debt options available, debt has gotten less expensive, base rates have stayed generally the same, but spreads have come in. So that combination inevitably leads to a little bit of cap rate compression. We still feel like we've got a competitive advantage in terms of the certainty that we offer as a buyer and then our cost of capital. But it is becoming a little bit more competitive.

Thanks. Next question is from the line of Blaine Heck from Las Fargo.

Please go ahead.

Great. Thanks. Good morning. Can you talk a little bit more about your leasing pipeline and any trends you're seeing with respect to tenant size or industry? Are you seeing any specific segment of the market strengthening or weakening as we progress through 2025?

Hey, this is Richard. So I think the first thing I'd note is that we continue to see really constructive dynamics in every one of our markets. And And if you kind of look to the building blocks of the fundamental backdrop that I outlined with regard to Charlotte, I mean, we're seeing those building blocks to some degree in every market. So we're just broadly encouraged, I would say, about the strength of pipeline. It's very, very broad in terms of markets. Industry mix, really, there's not much of note there. I'd say that financial services is the heaviest contributor to our pipeline market. today and not far behind that is illegal. As you'll recall, legal was pretty heavy kind of earlier in the year for us. And then tech still was playing a more modest but still meaningful role in our pipeline. And interestingly, healthcare companies, not healthcare providers, but certainly healthcare industry participants are a larger segment than we normally see.

Great. That's helpful. Thanks, Richard.

And maybe sticking with you, can you talk about what you're seeing with respect to net migration to your markets? Have you seen any increase in interest from tenants that currently have exposure to other markets to expand or relocate to the Sunbelt? If so, are there any specific markets that stand out?

Kind of a similar story, really. We're seeing new-to-market requirements, and this is not just new this quarter. I think we've been seeing it really for the balance of this entire first half of 25, where new-to-market requirements have really come into view. Say, mostly Atlanta and Charlotte. Again, this kind of lines up with our leasing pipeline in general, but Phoenix has been an interesting story. in terms of some new-to-market requirements. I think we've pointed out in the past, too, that these new requirements to various markets aren't always big, singular headquarters leases. A lot of times, these can be companies that are headquartered elsewhere, certainly outside the Sunbelt, that are deciding to increase their presence or build hubs within Sunbelt markets or transition over time to a larger presence. outside of where they currently are headquartered. So you're seeing a combination of both true traditional headquarters and these smaller hubs.

And, Blaine, I'd just add on to that that we are seeing some of that activity in Austin as well, some new-to-market or large growth and further growth of existing hubs of kind of West Coast-type companies, and that 95%, least effectively, we just don't have the space today unless we were to consider something new.

Okay, great. Lastly for me, Colin, you talked about targeting maybe lower occupancy and higher CapEx office assets for disposition if you ultimately decide to sell. I guess given that profile, would it be fair to assume that the cash cap rates after CapEx could be close to where you've acquired recently, or are they likely to be higher than that?

Yeah, I mean, a big driver there will be, you know, what is the, you know, the occupancy level of those particular assets. And so I think, you know, certainly if it is a lower occupancy building, I think just on a standalone basis, there's potential to recycle capital, you know, into newer, better leased buildings, perhaps at a lower stabilized yield, but relative to that lower in-place occupancy that could still be kind of neutral to accretive. But we're going to look, as I said, any disposition is going to, the catalyst for that will be the new investment opportunity. And we're confident that as we identify those opportunities, we can look to, you know, our small pool of what I characterize as kind of non-core assets and perhaps even match that with some land that to make sure that we are reinvesting and doing so accretively. And, you know, Kennedy touched on the investment sales market picking up and more activity. And I'd say where a lot of that capital is focused is probably on the exact type of buildings that we'll consider selling. And so we think it is a better environment. We've been very patient over the last several years in a kind of less appealing sales market, and we think that's changing. And so as disciplined owners, we think that should be a source of capital that we give priority to to make sure that we continue to upgrade the quality of the portfolio, increase the occupancy, and lower the CapEx profile.

Great, Kelly. Thanks, everyone. Thanks, Blaine. The next question is from the line of Nick Sillman from Bearden.

Please go ahead.

Hey, good morning. Maybe Colin, just overall, you guys tend to be a first movers and like kind of adapters, which kind of trends you're seeing in today's environment. So maybe as you're looking at acquisitions now, since you've been a little bit more aggressive here in the last 18 months or so, are there any sort of changes or type of characteristics you've noticed in the assets you're looking at, whether it be the size or sub markets? that you've just seen shift or you guys are thinking about a little bit differently?

Yeah, well, I think if you kind of look back more broadly over the span of, you know, the last five years and we've been particularly active, I'd say there's certainly, you know, a bit of a bias on our part to, you know, sell what we would call old and tall and heavily invest in new and small. and particularly the assets that have what we would characterize a lifestyle orientation, which, you know, is important not only to be a new vintage asset with, you know, great ceiling heights and great amenities and all the things that you would expect within the four walls of a trophy building, but it's really important to us that they're located in really vibrant neighborhoods that have energy. And as we talk to our customers and as they evaluate space, I think that's one of the key priorities is to find spaces that are in environments that are exciting and appealing for their employees to show up, spend time together in the office and also outside of the office. So that clearly, as you look at our activity over the last five years, I think it all fits squarely with that.

That's helpful. And then maybe just a quick follow-up on a I'm just Samsung at Briar Lake. I believe there was potentially some subtenants there that you guys could go direct with, but updates there. And then also just kind of Houston overall, do you kind of put that in that bucket? I know it's still probably fits kind of lifestyle office, but not a core market for you guys. But would you put that in the likes of a North Park for kind of that non-core sales?

So this is Richard, I'll touch really quickly on Samsung and the situation from a leasing perspective. So when the property shows really well at this point, obviously we put Apache in there, they're in their space, a lot of energy now, did a fantastic redevelopment, really upgraded the amenities across the board. So any tours, Anytime we have an opportunity to show that asset, I think folks come away very impressed and love the project. Samsung, you're right. There are subtenants in the bulk of that space. Samsung is going to be relocating. They're leaving the Westchase submarket. It really is not a commentary on the building. We do feel that we have an opportunity to to likely have a shot to go direct with some number of those subtenants. Could be 10% of the space, could be 30, time will tell. But we have very good activity already since that expiration is obviously a little over a year away, but getting closer, there's starting to be more interest in it from the market. So feel very good about our competitive position and our ability to backfill that efficiently.

This is Kennedy. As it relates to our thoughts here on Briar Lake as a potential disposition candidate, I would say you characterize it well. It's a lifestyle office property. We've been really pleased with the reception that we've gotten from our customers post-renovation. Richard said we feel good about the backfill of the Samsung space and the ability to go direct. So it's not on the top of the list over time. As you said, Houston is not a core market. So I think we'll continue to evaluate that as we find acquisitions. But at this point, it's not on the top of the list to sell.

Great. That's it for me. Thank you. Your next question is from the line of Peter Abramowitz from Jefferies.

Please go ahead.

Yes. Thank you for taking the question. I know you covered North Park and the OneTrust move out there in terms of why the occupancy dipped. Just noticed occupancy also went down a little bit in Tampa. Could you talk about anything specifically that drove that?

Sure. It was an expiration of a customer on the second floor of Harborview. Very standard at 25-ish thousand square feet. We have those kinds of ins and outs in the portfolio routinely.

Okay, that's helpful. Thank you.

And then maybe to go back to Colin's comments on capital recycling and the prepared remarks, I guess does your kind of evaluation and underwriting also include potentially new markets? And could you talk about how you're sort of thinking about potential entry into new markets?

Yeah, we're always evaluating kind of all markets. I mean, that we think is core to our job is we certainly continue to always pressure test our Sunbelt lifestyle strategy. But we do think that those prevailing long-term secular trends of the migration to the Sunbelt and the flight to quality will continue to endure. So I think our focus will absolutely remain for now focused on top flight Sunbelt markets. And, you know, there's a handful of markets that we're not invested in today that have got scale, like a Raleigh, like a South Florida. We continue to look at those and evaluate those. But I'd say our current priority at the moment is to expand our presence in some markets that we're already in. And I'd certainly include Markets like Dallas and Charlotte and Nashville and Tampa and Phoenix is probably the best opportunities for us in the near term to, as I said, continue to upgrade the quality of the portfolio, enhance our geographic diversification, and hopefully continue to do that on an accretive basis.

Okay, that's helpful. And just one more, Richard, you talked about the leasing pipeline and kind of the role big tech is playing in that. Could you talk about big tech specifically in Austin, kind of, you know, how demand's trending, whether they're kind of getting close to getting back to growing their footprint and any sort of trends you're seeing specifically in Austin among that cohort of tenants?

Sure.

One, I'd say we are absolutely seeing better trends. And so I think the demand equation is improving from big tech. It's not broad, but I mean, we all see the headlines of who's announcing bringing people back, whether it be four or more than five days a week. I think Amazon obviously is a very notable participant in that trend. But we're seeing... absolutely tangible signs that there is some growth need starting to reemerge. Again, I'm not characterizing it as the, you know, the heyday of 21, 22, where tech was just growing hand over fist in Austin, but it is improving.

All right. That's all for me. Thank you. Your next question is from the line of Yubal Rana from KeyBank Capital Markets.

Please go ahead.

All right. Thank you. Greg, you mentioned the bond deal you did earlier was better than anticipated. You know, I was wondering how you would describe the capital markets today, and if you were to do a similar deal today, you know, what kind of rate would you be able to get? Thanks.

Good morning, Gupal. Yeah, on the credit side, the capital markets continue to improve, whether it's CMBS or corporate spreads, as we typically borrow at today. You know, we issued that five-year bond at 117 over the five-year treasury. Today, that bond is trading in the mid-90s. And so, you know, it's coming at least 20 basis points from where we issued it. So we could get even a lower coupon today, which feeds into the remarks that I made earlier about an improving capital market and that Kennedy kind of latched onto as well when we talked about kind of the liquidity and pricing and cap rates in the office space. I mean, credit is the, you know, the oil in the machine. And when credit is flowing, that's a good thing for transactions, and we're seeing that. And the credit markets have absolutely improved over the last six months.

Okay, great. That was helpful. And then just wondering, is there any update on the Bank of America move-out that's occurring now, and any updates on your plans there? Thanks.

Nothing concrete. Again, I mentioned that we are rebranding the property, which we think is actually really exciting and important for increasing the funnel for potential customers to backfill B of A. They literally expired yesterday. So, you know, we finally have control of the space, which is going to allow us to start to execute and move, though it's been planned for a long time, move on our redevelopment. And those plans have come together very nicely and can't wait to get started with that.

And I'll just add on to that, Opal, that in many respects, I'm glad that that expiration finally occurred yesterday. It's kind of been much anticipated over the last several years. And I think specific to that property, as Richard mentioned, the rebranding is a big deal. And our development team has a fantastic plan to reposition that asset in a similar manner as we did to Promenade here in Midtown Atlanta. But I think importantly for the company, just stepping back, there are no other large known move outs to talk about. And as Richard indicated, we believe the portfolio occupancy will trough with that move out during this third quarter. And we think then directionally things are up and we'll be talking about growing occupancy and growth with very few or a very modest expiration schedule in 26 and no other large customers. We think it's going to be a really, really good setup for us to drive that occupancy in an improving market.

Okay, great. That was helpful. Thank you. Your next question is from the line over the D-line of Brzezinski from Green Street. Please go ahead.

Just a quick one for me. Richard, I think you mentioned that leasing pipeline remains strong and the late-stage pipeline is actually at the highest level since you guys started tracking it. I guess, can you sort of give us details on what you think is causing this continuation of strong demand? Is it just a rise in aggregate office demand in general, or do you guys think that Cousins given the quality of the portfolio, is just continuing to garner a significantly larger share of the leasing activity that's going on across your markets?

Hey, Dylan. Good morning. It's Colin. And I'll answer that. I just want to kind of, again, look at a bigger picture here, because certainly there's angst, and we feel the angst is you get what is a relatively weak employment report this morning and angst about the macro economy. But I just think it's really important for us all to recognize what's playing out in the office space today is the reversal of an extraordinarily anemic market over the last four years. You had companies significantly shrinking their space, in some cases losing their space altogether. and certainly not growing. And now companies are scrambling, and there continues to be pent-up demand because of the length of that, you know, anemic market. And so notwithstanding what looks like a tepid employment environment, and it perhaps is, companies are still playing catch-up to get their workers back into their office. And I'd say importantly for Cousins is And while we're seeing a disproportionate amount of the demand, it is focused on a smaller percentage of the inventory, and our portfolio fits squarely into that. And I think that's kind of a key driver for us of why we're seeing that pipeline continue to remain strong.

Great. Thanks, Colin. I really appreciate that. The last question is from the line of Brandon Link from Barclays.

Please go ahead.

Great. Thanks for taking my question. Just one for me. As you're looking at capital allocation at this point in the cycle, it seems like you're picking up the pace of acquisitions fairly significantly. Where do the mezzanine financing opportunities sit in your list of priorities?

It's certainly not our core business and not our priority. We are equity investors and long-term equity investors at that. But we have a really creative team, entrepreneurial team, that identifies opportunities that, whether it be in the mezzanine or preferred or structured investments, And we think in certain instances when collateralized by lifestyle office that they can be compelling opportunities for us in the short term in their structured form, but perhaps can lead to longer term benefits. acquisition and investment opportunities. And so we'll continue to explore those. I think from a sizing perspective, we recently did three of those. Two have been paid off. I don't think it'll be a material part of our balance sheet, but, you know, anything under $100 million in the aggregate, I think we're comfortable with. Again, we don't want to do anything in that form that, from a size perspective, could create a near-term earnings boost, could create a longer-term earnings headwind if those are ultimately paid off. So we'll size the overall scale of that opportunity appropriately, but I do think it's a unique and compelling way to source some longer-term acquisition opportunities.

Great. Thanks, Colin. Thanks for going on. Thank you.

There are no further questions at this time. I'd like to turn the call over to Colin Connolly for closing comments. Sir, please go ahead.

Thank you all for your time this morning and interest in Cousins Properties. If you have any follow-up questions, please feel free to reach out to Greg Azima or Ronnie Imbo, and we hope to see many of you at some of the upcoming conferences in September. Have a great weekend.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.