Cousins Properties(US:CUZ)2023-10-27 15:43Financial Data and Key Metrics Changes - The company reported a solid third quarter with FFO of $0.65 per share and a 4.6% increase in same-property net operating income on a cash basis [105][141] - Average net rent for the quarter was $33.94, with average net effective rent at $23.77, only about 2% below the last four-quarter run rate [137][141] - The company raised its full-year 2023 FFO guidance to between $2.60 and $2.64 per share, up from a previous midpoint of $2.61 [143] Business Line Data and Key Metrics Changes - The company completed 32 office leases totaling 548,000 square feet in Q3, with a weighted average lease term of 8.6 years [10] - Second-generation net rent growth improved to 9.8% on a cash basis, with cash net rent growth observed in every market [11][141] - In Atlanta, 257,000 square feet of leases were signed, with over 80% of the activity in Midtown and Buckhead [138] Market Data and Key Metrics Changes - The office market is experiencing a flight to quality, with properties built since 2010 accounting for significant positive net absorption, while older properties face negative absorption [5][37] - The company noted that its Austin portfolio was 94.6% leased, with a strong cash net rent roll-up of 24.9% [139] - The overall leasing activity in the Sun Belt markets remains robust, with a strong prospect list of over 140,000 square feet of active proposals [38] Company Strategy and Development Direction - The company focuses on premier lifestyle office and mixed-use properties in vibrant Sunbelt neighborhoods, differentiating itself from commodity office spaces [106][108] - The company is strategically positioned in the right Sun Belt markets with a fortress balance sheet and minimal near-term debt maturities [7] - The company is monitoring the evolving situation with WeWork and exploring various alternatives for its leases [34][110] Management's Comments on Operating Environment and Future Outlook - Management expressed realism about the potential negative impacts of higher interest rates but emphasized the company's ability to thrive in various economic cycles [7] - There is a growing trend of companies mandating in-person work, which is expected to continue, enhancing demand for office space [31] - The company remains patient and disciplined in its investment strategy, focusing on cash flow and maintaining a strong balance sheet [109][155] Other Important Information - The company has a strong liquidity position with only $144.5 million outstanding on its $1 billion unsecured credit facility [15] - The company has letters of credit in place for two leases with WeWork, covering all balance sheet exposure and lost revenue for the remainder of the year [119][135] - The company is seeing a bifurcation in the office market, with lifestyle office properties outperforming lower-quality office spaces [32][132] Q&A Session Summary Question: Can you break down the leasing pipeline between new and renewals? - The leasing pipeline consists of both new and renewal leases, with fluctuations driven by the expiration schedule [123] Question: What gives you confidence in the two remaining current leases with WeWork? - The situation is fluid, but the company is monitoring physical activity in the spaces and remains in dialogue with WeWork [84] Question: How are you addressing the challenges in the North Park and 111 Congress properties? - North Park has faced challenges, but 111 Congress is expected to see increased activity once the right customer is found [76][79] Question: What are your thoughts on the current investment sales market? - The investment sales market is currently frozen, with a meaningful bid/ask spread emerging due to rising interest rates [130] Question: How do you view the potential for redevelopment projects given high cost barriers? - The company is tracking opportunities and remains patient, waiting for the right time to engage in redevelopment projects [147][164]