Cousins Properties (NYSE:CUZ) reported robust third-quarter earnings, with funds from operations (FFO) of $0.65 per share, marking a 4.6% increase in same-property net operating income on a cash basis. Despite a challenging macro environment for the office sector, the company believes it is well-positioned with its Sun Belt Trophy portfolio and a strong balance sheet.
Key takeaways from the call include:
- Cousins Properties leased 548,000 square feet during the quarter, with a 9.8% cash rent roll-up.
- The company executed key renewals in Atlanta and Tampa and highlighted positive trends in its portfolio, including increased importance of sponsorship in evaluating landlords.
- SVB Financial Group has vacated their property at Hayden Ferry I in Phoenix, with Cousins expecting to backfill the space with interested prospects.
- The company raised its full-year 2023 FFO guidance to between $2.60 and $2.64 per share.
- Richard Hickson, a company executive, noted positive dynamics in terms of occupancy and rent in Atlanta, Tampa, and Phoenix, while Austin has faced supply challenges and lower leasing volume.
- Colin Connolly, CEO of Cousins Properties, expressed confidence in underwriting redevelopment projects based on past successful experiences and recent achievements in other projects.
In the third quarter of 2023, the company achieved its highest quarterly leasing volume, completing 32 office leases totaling 548,000 square feet, with a weighted average lease term of 8.6 years. The volume included two significant long-term renewals, and the company's lease expiration profile remains stable, with only 15.1% of annual contractual rent expiring through the end of 2025.
The company's late-stage leasing pipeline remains strong, with approximately 615,000 square feet in negotiation. The Atlanta market has shown positive performance, with strong leasing activity in Midtown and Buckhead. In Nashville, the company has almost 50,000 square feet of leases in negotiation. The Austin portfolio is well-positioned, with 94.6% leased and no significant near-term expirations.
Despite concerns about WeWork's financial situation, Cousins Properties is in dialogue with the coworking giant regarding potential lease restructuring. The company expressed optimism that occupancy has bottomed out and aims to end 2024 with higher occupancy than 2023. However, due to a nondisclosure agreement, the company could not provide specific details on the performance of WeWork's locations.
Finally, the company mentioned that it plans to maintain liquidity while being patient and disciplined in deploying capital. In terms of raising capital, equity capital is not currently attractive, but mortgages on the right office buildings and unsecured debt are available at higher spreads. The company has not seen a significant increase in sublease availability and is less concerned about the impact of work-from-home dynamics on trophy lifestyle offices in the Sun Belt.
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