Cousins Properties Incorporated ($CUZ)

Good morning, ladies and gentlemen, and welcome to the Cousins Properties First Quarter Conference Call. [Operator Instructions] This call is being recorded on Thursday, April 30, 2026. 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 Properties First Quarter Earnings Conference Call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard Hickson, our Executive Vice President of Operations; Kennedy Hicks, our Executive Vice President and Chief Investment Officer; and Gregg Adzema, our Executive Vice President and Chief Financial Officer. . The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws, and actual results may differ materially from these statements due to a variety of risks, 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 is contained in our filings with the SEC. With that, I'll turn the call over to Colin Connolly.

Thank you, Pam, and good morning, everyone. We had an excellent start to 2026 at Cousins. On the earnings front, the 2:06 PM team delivered $0.73 a share in FFO during the quarter, which was $0.02 a share above consensus. In addition, we increased the midpoint of our FFO guidance by $0.02 a share to $2.94 a share for the full year in 2026, which represents 3.5% growth over 2025. This would be our third consecutive year of FFO growth and represents a 3.9% compounded annual growth rate since 2023. Cousins earnings growth during this 3-year time frame is unmatched among traditional office REITs. Leasing remained robust. We completed 932,000 square feet of leases during the quarter which is one of the highest quarterly volumes in the history of the company. Our cash rent roll-up on second-generation leasing was 15.2%, which marks 48 consecutive quarters of positive rent roll-ups. Significant leasing wins included a large renewal with our largest customer of the Domain in Austin and new leases with Oracle at New Hall at Nashville and KPMG at Presidium in Midtown Atlanta. These results underscore the strength of our portfolio and depth of customer demand for high-quality lifestyle office space. I'll start with a few broader observations on the trends driving the office market. First, those major companies are phasing out remote work yesterday, Fidelity became the latest to announce a 5-day a week office mandate. At Cousins, we call it the return to normal, and it is boosting demand across all of our markets. Second, the flight to quality is unrelenting. Customers are prioritizing high-quality, well-amenitized and well-located buildings to promote engagement and collaboration. According to JLL, Nearly all of the positive net absorption in the office sector since the onset of COVID has occurred in buildings that delivered from 2010 to present. Third, the Sunbelt migration has reaccelerated. We have seen a significant uptick in relocation activities as proposals to meaningfully increase personal and business taxes in New York, California and Washington have advanced. Starbucks recently announced the major East Coast headquarters in Nashville. Apollo is looking for a second headquarters in Texas or Florida. Capital Group announced a major hub in Charlotte. Each of these companies specifically state access to the growing talent pools in these markets is a major reason for their decisions. These are not back of house or support jobs that they are creating. We believe that we are still in the early innings of this migration trend and expect these announcements to continue. Lastly, record high office conversions combined with record low new development starts are leading to shrinking inventory of office properties. Given the 3- to 4-year lead time to deliver a new project, this is unlikely to change until 2030 at the earliest. Simply stated, demand is increasing while supply is decreasing. The net result is an emerging shortage of premier lifestyle office space in the best submarket of the set and one that will become increasingly acute over the next several years and favor landlords. Cousins is uniquely positioned to benefit from these trends. Before moving on, I want to briefly address the topic that has received a lot of attention recently and that's artificial intelligence. While AI is shaping how companies operate internally, we are not seeing evidence that is reducing long-term demand for high-quality office space. In fact, many of the companies most actively deploying AI are also prioritizing collaboration. Talent density and physical presence, which aligns well with our lifestyle office portfolio in the Sunbelt. Ultimately, space decisions are still being driven by people culture and access to talent. And in that respect, these trends we're seeing in our leasing activity remain very encouraging. Turning to our strategy. As we outlined in prior earnings calls, our focus remains unchanged. We are sharply focused on driving sustainable earnings growth while maintaining our best-in-class balance sheet and continuing to enhance the quality of our Sunbelt Lifestyle office portfolio. Our team's ability to drive both internal and external growth is key to this effort. During the quarter, we advanced that strategy. First, we increased occupancy at 88.9% across the portfolio as a result of robust leasing activity. Second, we closed on the acquisition of 300 South Trion, a 638,000 square foot trophy office asset in Uptown Charlotte for approximately $317.5 million. Third, we repurchased 3.9 million shares of our own stock at a weighted average price of $23.36, and lastly, we sold Hard review Plaza in Tampa for $39.5 million and entered into an agreement to sell 111 Congress in Austin. Looking ahead, the #1 priority for Cousins is to continue to grow occupancy. We have modest lease expirations this year and a robust late-stage leasing pipeline that will support this effort. More broadly, we remain focused on optimizing our portfolio, maintaining flexibility and creating optionality in our capital allocation decisions. As I mentioned earlier, everything we do is guided by a disciplined approach that prioritizes earnings accretion, balance sheet strength and continuous improvement in our portfolio quality. We are excited about what lies ahead for Cousins. The office market is rebalancing, new construction is virtually nonexistent and high-quality lifestyle office space is becoming increasingly scarce. Despite ongoing macro concerns and volatility in the public markets, Cousins continues to outperform supported by a strong operating platform, a highly efficient G&A structure and one of the strongest balance sheets in the office REIT sector. Before turning the call over to Richard, I want to thank our talented customs team their commitment to excellence and to serving our customers is the foundation of all of our success. Richard?

Thanks, Colin. Good morning, everyone. Our operations team delivered the strongest start to a calendar year since Cousins began its focus as a pure-play owner of trophy Sunbelt office. In the first quarter, our total office portfolio end period lease and weighted average occupancy percentages were 91.8% and 88.9%, respectively. . Both metrics increased sequentially and were driven by a combination of organic growth and our recent investment activity. Our portfolio lease percentage increased in nearly every market with Atlanta, Charlotte and Austin is the largest contributors in terms of organic growth. While Nashville's lease percentage increased materially with our recently signed 116,000 square foot new lease for [indiscernible] that project will not be included in our overall portfolio statistics until it is stabilized. The largest market contributors to organic growth and our weighted average occupancy were Atlanta and Austin. Our lease expirations through 2027 now total only 8.3% of contractual rent, which is 320 basis points lower than at the end of 2025. Coming off of a very strong fourth quarter, our leasing activity in the first quarter was record setting on a number of levels. Our team completed 49 office leases totaling 932,000 square feet during the quarter with a weighted average lease term of 6.6 years. Our square footage volume was the highest for a first quarter in well over a decade and was also our highest quarterly level in general since the second quarter of 2019. On a square footage basis, 52% of our completed leases this quarter were new and expansion leases, totaling 483,000 square feet. Human expansion leasing volume was essentially in line with our very strong fourth quarter which we view as a great repeat performance. The team also completed 19 renewals during the first quarter, including a material renewal in Austin that took care of what was previously our largest 2027 expiration. Regarding lease economics, our average net rent this quarter came in at $44.54, approximately 18% higher than the full year 2025. This quarter's average leasing concessions were essentially in line with the full year of 2025. As a result, average net effective rent this quarter came in at a solid $32.28, second only to the third quarter of 2024. Finally, second-generation cash rents increased yet again in the first quarter at a strong 15.2% and with cash rents rolling up in every market where we had activity. Beyond our excellent recently completed activity, our overall leasing pipeline remains very healthy at a level comparable to this time last quarter. In our early March investor presentation, we shared the 1.2 million square feet of activity was either signed first quarter to date or in weeks negotiations. Even after completing 932,000 square feet of volume in the first quarter. As of today, we have 1 million square feet of leases either signed second quarter to date or in lease negotiations. This late-stage pipeline has been growing nicely throughout the second quarter. In fact, it has grown by about 200,000 square feet just in the past 2 weeks and currently includes 450,000 square feet of new and expansion leases. We believe our late-stage pipeline has us very well positioned for continued strong leasing performance in the near term. Turning to our markets. In Atlanta, according to JLL, leasing activity was strong with 2.3 million square feet of leases signed in the first quarter. Sublease availability declined for the eighth consecutive quarter and is now at its lowest level since the start of 2021. Additionally, average asking rents had the largest quarterly increase in 2.5 years. We continue to see solid demand in our own portfolio where we signed 192,000 square feet of leases in the first quarter. This included a 105,000 square foot new lease with KPMG at Presidium and Midtown. Subsequent to first quarter end, we also signed a new 46,000 square foot lease with Coal Rail at 725 fonts in Midtown. Coal Rail is a homegrown Atlanta-based technology company that decided to relocate to 725 fonts from downtown because of the property's location, quality and direct access to the belt line, and we are excited to welcome them as a customer. Our Atlanta portfolio was 89.3% leased at first quarter end. In Austin, [indiscernible] notes that tenant demand increased 30% year-over-year from about 3.9 million square feet of requirements in the first quarter of 2025 to nearly 5 million square feet today. The market continues to digest speculative development delivered since 2023. However, new secular development is now at its lowest level since 2013. Across our Austin portfolio, we signed an impressive 339,000 square feet of leases in the first quarter, including a 273,000 square foot renewal of a Fortune 10 technology company in Domain 8. This sizable renewal demonstrates a strong commitment to the Austin market and to the value of high-quality office in the core of the domain. Our Austin portfolio also increased to 95.3% leased as of first quarter end driven primarily by encouraging new activity in the CBD. In fact, our Austin team has seen a notable increase in overall tenant demand in the CBD since the beginning of the year and it's focused primarily on availability in the highest quality office segment. In Charlotte, market-level leasing activity maintained strong momentum in the first quarter with a 74% increase year-over-year. In our portfolio, we signed 181,000 square feet of leases in the first quarter, 58% of which were new and expansion leases, and the feed rolled up cash rents 26% and Activity included a 72,000 square foot new lease with Scout Motors at 550 South and a 54,000 square foot renewal and 27,000 square foot expansion of a major law firm at our newly purchased 300 South Triumph. Touching on our redevelopments. Our 550 South project is very close to completion within weeks. And with that, we have seen a nice uptick in early stage, we've seen interest. Regarding 201 North Tryon, that redevelopment project is well underway and should be substantially complete during the first quarter of 2027. And looking at our recently completed redevelopments whether it be Buckhead Plaza and the Promina buildings in Atlanta or [indiscernible] Gateway and Hayden Ferry and Phoenix, we generally saw a meaningful boost in demand and importantly, in lease economics once the projects approach completion and prospects could see the finished product. Based on this experience and also knowing the shortage of available premier space in the market is becoming more acute we are taking an intentionally patient approach to leasing at the property. In short, we are willing to trade some number of months of timing of occupancy and return for meaningfully better net effective rents and outcome for shareholders. In Dallas, the market recorded 3.6 million square feet of leasing activity during the first quarter, above first quarter 2025 levels. New supply also remains limited, which has helped to boost top-tier assets and drive rig growth. Lights quality remains the dominant theme, consistent with all of our markets, with Class A space accounting for 73% of the quarterly lease volume. In our 800,000 square foot portfolio, we signed 65,000 square feet of leases. Rolling up cash rents over 32%. This past quarter, we also took over the management of Legacy Union 1 [indiscernible] and I'm pleased to report that subsequent to first quarter end, we signed a 52,000 square foot long-term lease with U.S. Renal Care, representing our first direct lease with an existing subtenant at the property. Our Dallas portfolio was 98.1% leased at the end of the first quarter. Finally, and as I mentioned earlier, our leasing volume this quarter included a 116,000 square foot new lease with Oracle at New Hakan Nashville we are very encouraged by this activity and Kennedy will share more details about [ Neuhof ] in her remarks. As always, a big thank you to our entire team for the work you put in to make the start of this year an incredibly positive one. We appreciate everything you do. I will now turn the call over to Kennedy.

Thanks, Richard. I'll start with the updates from our recently completed new hot project in Nashville. As you may have noticed, we used this mixed-use project off of our development schedule in our supplement this quarter, given its near stabilized status. The approximately 400,000 square foot office component is now 84.3% leased, up from 55.3% last quarter, largely driven by the 116,000 square foot new lease with Oracle. . The company leased 5 floors on a long-term basis to accommodate its ongoing rapid growth in Nashville, setting it as the center of Oracle's cloud and AI growth. We are excited for the company's employees to take occupancy later this year and add to the vibrancy of this unique project. I am also pleased to share that we are now in lease negotiations for the remaining 2 full floors of the project which is executed will bring the office component to almost 96% leased. The accelerated interest in New has is indicative of the demand we continue to see across our portfolio for best-in-class differentiated assets. The 542 unit apartment component at New Hawk stabilized this quarter at 92.6% leased. I want to point out that we added New Hawk Phase 2 to the land inventory on Page 27 of the supplement. As part of the Phase 1 development, we completed significant infrastructure, including all of the parking for a future office building that is planned to be approximately 300,000 square feet. The cost for this work, including the allocated land value are now reflected in our total land inventory number, whereas they were previously part of the overall new of project spend. Given the work and investment already completed for this next phase, we believe we will have a significant competitive advantage in terms of both speed and pricing when the time is right to move forward into development. As a reminder, we own New Hawk in a 50-50 joint venture. Turning to our investment activity. We had another busy quarter. In February, as we previously disclosed, we closed on the off-market acquisition of 300 South Trian and Uptown Charlotte. We acquired the building for $317.5 million or $497 per square foot a basis that represents a significant discount to replacement cost. The 638,000 square it highly amenitized assets is an excellent strategic fit for our portfolio and representative of the continued advantage we have in the market as a buyer for large [ Turkey ] asset. As Richard said in his remarks, we have already executed a renewal and expansion of a large customer there. Enhancing the remaining lease term and validating the mark-to-market in rents that can be achieved at the building. Across the country, the offer transactions market has opened up with sales volume steadily increasing. Both equity and debt sources are realizing the strengthening fundamentals and are now more constructive around opportunities. Smaller transactions are generating the most step. Accordingly, we continue to pursue select dispositions within our portfolio that we think line up well with market demand. I will add that we are in a fortunate position that we don't need to sell any of our assets. So we plan to remain disciplined in our approach. In late February, we closed on the previously discussed sale of Harbor Be Plaza and [indiscernible] Campus. The billings sold for $39.5 million or $191 per square foot. The pricing equates to a low 9% cap rate. As I mentioned last quarter, [indiscernible] asset needed capital upgrades, and we believe our capital was best focused elsewhere. We remain under contract with the residential developer to sell our 303 Tremont land parcel in South and Charlotte. The contract price for the 2.4 acres is $23.7 million and we expect it to close before the end of the year. We are always evaluating the highest and best use of our land bank and resources and determine that this site is now better suited for residential development as opposed to the office towers that we originally contemplated. We are also now under contract to now 111 Congress in Austin. This 519,000 square foot asset was built in the late 1980s and is prominently located in Austin CBD. Our ownership of this asset based back to the Parkway transaction in 2016. And similar to Harborview, our view is that this asset is better off in the hands of private capital going forward and we intend to redeploy the proceeds as part of the funding of 300 South Trion. We were pleased with the process and the positive sentiment towards DAS in the Austin market. We will disclose more details around pricing after closing, which is anticipated to be early in the third quarter. These dispositions are representative of our strategy to continuously monitor our portfolio and identify opportunities to recycle out of non-core assets to fund acquisitions, acquisitions of either assets or our own stock if that's the better use of proceeds of the time. We only intend to do so in a manner that is neutral or accretive to earnings. We believe that this ongoing portfolio optimization will only enhance the resiliency of our assets and future cash flows. Going forward, we plan to be opportunistic when it comes to both acquisitions and dispositions as well as other investment opportunities such as development. We have the flexibility to invest in a variety of ways throughout the capital stack, including preferred equity in med positions as we have demonstrated in the past. Given the emerging start of available lifestyle office space, we believe that there will be less instances where development is compelling and offers an appropriate return premium to treat the acquisitions. We are currently evaluating opportunities with the goal of breaking ground in the next year. We will provide more insights as if and as these transactions materialize. With that, I will turn the call over to Gregg.

Thanks, Kennedy. I'll begin my remarks by providing a brief overview of our results. spending a moment on our same property performance, then moving on to our property transactions and capital markets activity for closing my remarks by updating our 2026 earnings guidance. Overall, as Colin stated upfront, our first quarter results were outstanding. Second-generation cash leasing spreads are positive, same property year-over-year cash NOI increase and leasing velocity was exceptionally strong. Focusing on same property performance for a moment. Cash NOI grew 5.5% during the first quarter compared to last year. This was comprised of a 4.5% increase in revenues and a 2.7% increase in expenses. These numbers were positively impacted by a combination of increased occupancy and the expiration of rent abatements primarily at Promenade Tower, Tempe Gateway, 300 Colorado and Hayden Ferry. Before moving on, I wanted to take a moment to highlight our recent same-property expense performance. Despite a lots of talk around accelerating property level inflation, including taxes, utilities, payroll, we have held same property expenses to an average annual increase of just 1.95% over the past 4 years. I suspect the sub-2% number is well below most investors' perception of office expense growth over the past few years. A new and efficient portfolio located in affordable and business-friendly markets is what has allowed us to contain expenses. As Kennedy discussed earlier, we acquired a property in Charlotte during the first quarter. We will fund this acquisition with the sale of 3 noncore properties. We've already sold Harborview during the first quarter, and we're under contract to sell 111 Congress during the third quarter and as Kennedy said, 303 Tremont land during the fourth quarter. We also received repayment during the first quarter of our $18.2 million mezzanine loan secured by an equity interest in the 110 East property in Charlotte. Moving on to our capital markets activity was very busy and was very productive. We started by issuing a $500 million 7-year unsecured bond immediately after announcing fourth quarter earnings in early February. It was a great execution, generating a yield to maturity of 5%. With this issuance, we have effectively taken care of all of our 2026 refinancing needs. In total, we have issued 4 unsecured bonds for $1.9 billion since receiving our investment-grade credit rating in April 2024. As Colin stated upfront, we also repurchased 3.9 million shares at a weighted average price of $23.36 per share during the first quarter. Please note that subsequent to quarter end, the Board authorized an increase to our recently launched share repurchase program, taking the authorization from $250 million to $500 million, of which approximately $410 million remains available. We now have both a share repurchase program as well as an ATM program available for use, and we have actively employed both over the past 12 months. In addition to the shares we repurchased this past quarter, we issued 2.9 million shares on a forward basis under our ATM program during the first and second quarters of 2025 at an average price of $30.44 per share. We have not yet settled these forward shares. Finally, on April 1, we closed a new 5-year $1.2 billion unsecured credit facility, increasing the prior facility that was scheduled to mature in April 2027 by $200 million. As part of this process, we also amended our existing $400 million and $100 million unsecured term loans, adding 2 6-month extensions to each. The borrowing spread improved by 15 basis points on both the credit facility and the larger term loan and by 30 basis points on the $100 million term loan. Before closing with guidance, I wanted to briefly provide you context on leverage. Our goal remains, as it has since 2014 to maintain net debt to EBITDA in the low 5x range. Metrics a bit elevated this quarter, 5.66x but it's only a timing issue. Once we complete the asset sales to fund the Charlotte acquisition and we complete the funding of the share repurchase leverage will return to its historic level. With that, I'll close my prepared remarks by updating our 2016 guidance. We currently anticipate full year 2026 FFO between $2.90 and $2.98 per share with a midpoint of $2.94. This is up from a prior midpoint of $2.92 and represents an increase of approximately 3.5% over the prior year. The increase in FFO guidance is primarily driven by the share repurchases I just discussed as well as better than forecast execution of the debt financing, partially offset by the elimination of a prior midyear SOFR cut assumption. We now have no SOFR cut assumptions during 2026 in our guidance. Our updated guidance assumes the 3.9 million share repurchase that we executed in the first quarter is funded with proceeds from the settlement of the 2.9 million shares we previously issued on a forward basis. In reality, we may ultimately fund some or all of the share repurchase with noncore asset sales. As Kennedy stated earlier, we are constantly monitoring the sales market and exploring additional sales candidates. However, for modeling purposes, we've assumed the settlements of all outstanding forward shares during the second quarter, and this is what's in our guidance. As I mentioned earlier, our guidance also assumes the 300 South Trian acquisition is funded with proceeds from Harbor View 111 Congress and 303 [indiscernible] Finally, our guidance does not include any additional property acquisitions dispositions for development starts in 2026. If any of these take place, we'll update our guidance accordingly. Bottom line, our first quarter results are among the best we have reported in recent memory. The important operating metrics that we track were outstanding, and we raised full year guidance. Office fundamentals in the Sunbelt remain strong, and we continue to deploy capital into compelling and accretive opportunities. We look forward to reporting on our progress in the coming quarters. With that, I'll turn the call back over to the operator.

[Operator Instructions] First question comes from the line of Blaine Heck from Wells Fargo.

Colin, you commented on the leasing pipeline in the earnings release and again here, can you and/or maybe Richard, give any more detail on the size of the pipeline today versus maybe a year or 18 months ago and versus your historical average? And maybe give a little bit more color on any trends you're seeing with respect to tenant or industry? Are you seeing any specific segments or market strengthening or weakening?

Sure, Blaine, this is Richard. I could take that, and then Colin can add on, if he'd like. For starters, you specifically asked the size of the pipeline overall today, certainly in the late stage is what I focus on more versus, say, a year ago, and it's about 2x the size of this time last year, that is the late pipeline. It's about the same size right now as this time last quarter. But year-over-year, it's grown significantly. There's some additional detail on the overall pipeline. I would note that the number of prospects in the pipeline overall has increased quite a bit. So I'd say on the order of about 15% since last quarter. So that's encouraging to see. The net size, again, is comparable to the last quarter, the mix of industries is roughly the same. I'd say technology is slightly ahead of financial services at this point, but they're both neck and neck and very big drivers of our activity and legal continues to be a significant component of our industry mix with professional services coming in last and then a good mix beyond that. That we have seen particularly strong -- I mentioned we had about 200,000 square feet that built into the late-stage pipeline here in the last couple of weeks. It's been growing nicely throughout the quarter. But we've seen the most increase in activity migrating through the pipeline in Atlanta, especially in Buckhead and in Midtown. Phoenix has had some nice bump. Nashville certainly is contributing as well. As Kenny mentioned, we're going to leases with 2 more floors there and some good activity in Austin. So it's pretty broad-based.

And Blaine, it's Colin. I would just add too, as it relates to the 900-plus Dalkia feet we leased this quarter and this kind of 1 million-plus square foot pipeline 1 kind of piece of commentary that I've seen is that the Sunbelt is largely back office and support function. And I would characterize just about all of the leasing activity that we're doing as very much front of house revenue-producing employees for very dynamic companies, whether it be in technology, financial services, investment firms, you name it, particularly also AI companies beginning to kind of infiltrate the Sunbelt. So I can very much kind of pushback on that narrative. While there are certainly suburban properties in Atlanta with back-office employees, the same holds true with back-office employees in suburban New York. The quality of the pipeline -- the portfolio that we have and our lifestyle properties is very much attracting very well-educated, knowledge, revenue-producing employees.

Great. That's really helpful commentary. And you all mentioned that asking rents have grown the most this quarter in 2.5 years. I was hoping you can quantify that increase and also -- can you comment on what you think is a reasonable forecast of the range for net effective rent growth in your segment Class A or trophy within your markets and whether there are any standout markets on the positive end of that metric or any that could be more muted?

Sure. This is Richard again. In terms of rent growth, we have a number of different examples we can give on really impressive rent growth across the portfolio in Atlanta. For instance, at Buckhead Plaza, we've been able to grow rents 20% in the last year or so. In Dallas, uptown, it's really been breathtaking how much rents have grown, in particular in Uptown. I think the general number is about 40% in growth since 2021. And I think new product and top of market asking rents right now are $80 net. So extremely impressive rent growth there. If you look at Charlotte, all the new products that has leased up in the last year or so in the market as they were kind of taking down large blocks. We pegged the growth during that process at roughly 10% during that time in Phoenix. Lastly, where we've done our redevelopment of Hayden Ferry, which is now complete. We've grown rents about 20% since 2024. So those are just some examples of some really bright spots where we've been able to push rent growth. So it's really just a dynamic market where Colin has mentioned that supply is shut down or we're not going to see any new supply really added to virtually any of our markets. It isn't already leased and demand is still allowing us to push net effective rents. In terms of how much those will grow I mean we certainly posted very impressive net effective rent growth this quarter. And it was broad-based. The mix of where we did our leasing this quarter was very favorable in a lot of our highest rent markets. And so we feel good -- it's always hard to prognosticate on exactly how much we're going to grow net effective rents in any given quarter versus another. But over time, we're confident that we're going to continue to be able to grow them in a manner that we've done so in the recent past.

Great. And then just lastly, can you talk a little bit more about the optionality you have for funding the share repurchases? I don't believe you've issued the forward shares yet. So can you talk about the strategic and economic merits for stock issuance versus additional sales? Are there certain cap rates or other factors that would make you lean towards sales instead of the forward equity?

Blaine, it's Gregg. We've issued the forward shares. We just haven't settled them. I just want to make sure everybody understands that. And we have the flexibility right now to settle those shares through year-end but that can be extended with the banks that help us issue those shares. So we've got ultimate flexibility there. In terms of -- we've assumed for modeling purposes because you need your models to put in some type of assumption in there. And so this is the most conservative and cleanest assumption, and that's what we provided it. Is that what we actually do at the end of the day? Maybe, maybe not. But as Kennedy talked about in her opening remarks, we're always in the market exploring kind of the market and liquidity and pricing for our noncore assets. We don't have a lot of noncore assets left, but we do have a handful and so we're out there exploring and so I think how we ultimately pay for the $90 million share repurchase that we executed in the first quarter will depend upon the clarity that we get over the next month or 2 or 3 on some of these efforts that Kennedy is doing with the noncore assets. We're in a sources and uses business. And ultimately, at the end of the day, we're trying to drive accretion on a leverage-neutral basis. And so I think one of our secret sauce here at Cousins is I think we've been very nimble about and in a position to be nimble with the balance sheet that we have, to figure out a way to maximize shareholder value but maintain the balance sheet. I think we've done a good job of that in the last few years, and I think we'll continue to do so in this transaction, the share repurchase and the funding of it will just be one more kind of example as we process that strategy.

The question comes from the line of Manus Ebbeck from Evercore.

Perfect. In line with the really good leasing volumes, about your expectations for like second-generation CapEx spending going forward? I know you don't necessarily guide FID, but I'm just trying to understand and square FFO versus FAD growth is kind of like in the near-term future?

It's great again. Second gen CapEx, as you know, if you've looked at our earnings supplement over the last few years, it can be super lumpy, it just depends upon the leasing that we do. And then honestly, when the tenants that we leased to come to us and kind of want their TI dollars, FAD is a cash basis metric. So we base it upon when the actual cash goes out the door. Some tenants can ask for very quickly, sometimes can wait a while before they ask for the mice. So it's really hard for us to predict. But it is loosely tied to leasing. At the end of the day. And so you've seen it elevated a little bit over the last few quarters because we've been leasing so much space and so you could see it for calendar year 2016, and I don't want to comment on quarterly numbers because they're very difficult to predict with any accuracy. But for the full year, I think you could see second-gen CapEx be a little higher this year than it was the last couple of years just because releasing some mic space. But once we stabilize the portfolio in the kind of the midterm, as Colin has talked about, you'll see second-gen CapEx kind of decline to its more historical levels.

That's appreciated. And you previously talked about your kind of like year-end occupancy target for 26 now bigger quarter in, and obviously, with leasing being very strong, the pipeline being very large -- how you feel about kind of like the occupancy trends kind of by like year-end '26 and how bullish it makes you kind of going forward into '27?

Sure, this is Richard. When you step back and look at all the building blocks, which we typically don't give that level of granularity or occupancy guidance. But when we look at all of the building blocks on that, we're seeing a relatively modest amount of new leasing that we need to do incrementally to what we already have in the pipeline or have already completed to get to a year number, which is our goal. And we're confident that, that modest amount is achievable and still feel good about our expectations for getting to 90%.

Your next question comes from the line of John Kim from BMO Capital Markets.

So you have 1 million square foot pipeline or already signed in the second quarter and that's versus roughly 800,000 square feet expiring this year. You're also selling 111 Congress, which is a little bit under leased versus your portfolio. So I'm just wondering where do you think occupancy or lease rates could go to either by year-end or maybe over the next 12 months?

John, it's Colin. As Richard just outlined, the goal for the end of the year, which we think is achievable, is 90%. And I think over the medium term, our intention is to drive this portfolio back to historical stabilized levels, which is absolutely and as in the low to mid 90%. That will take a little bit longer to get to. Just keep in mind, while we're leasing a lot of space this quarter. We believe we'll lease -- in the first quarter, we think we're going to lease a lot of space in the second quarter there's typically a lead time, in many cases of a year plus from signing of a lease to actual occupancy. And so our ability to kind of incrementally keep driving those up the occupancy up will be dependent upon the timing of the need of our customers. But the underlying demand is there and it's robust and it's being driven by certainly the return to office, which might be more temporary but more longer term, the slight to quality is insatiable and the migration of the Sun Belt is only accelerating.

Okay. And the large renewal you had in Austin, it sounds like that was with Amazon just based on your commentary. But I'm wondering if you could share any insights that you have on your largest tenant, just given you talked about reducing a lot of debts to almost 4 million square feet of office space globally. And is there anything we should read in the renewal term, it was a little bit lower at 4.7 years versus the new leases behind this quarter?

John, it's Colin. I can't be overly specific due to certain confidentiality provisions, but you can -- again, you can go look at our supplement, and it seems like you're on a pretty good track there. A couple of thoughts. I shared this last quarter some commentary specifically around Amazon, which has gotten a lot of publicity for announcing some small reduction in their workforce of, I think, 40,000 employees. But you have to kind of put that in perspective that they grew their headcount over the 5 years of the pandemic by almost 700,000 people and I think a company like that found that many of those workers were remote, many of those workers were kind of redundant hires during the pandemic. And so they view that as, again, a modest downsizing to create more efficiency, less bureaucracy and again, requiring that workforce to be back in the office days. So as it relates to their core hubs in places like Austin, we're confident that you'll continue to see them prioritize their space, and there are certainly. In this large renewal, we've done, there was no reduction in space. As it relates to term, when you add the -- this particular company's extension on top of the term that they already have that places them well into the 2030s. And I think it should be interpreted as a very positive signal as to their confidence in the domain.

Your next question comes from the line of Nick Thillman from Baird.

Colin, maybe a question for you. You guys have clearly defined the type of assets you want to own and just trying to get a sense of the overall scope of maybe just looking at your market share within your individual submarkets, what percentage of that trophy lifestyle office that's cousin owned versus the opportunity set longer term, maybe level setting and starting with that? .

Well, Nick, it was certainly vary market by market. But when we put together kind of the -- and go through our various submarkets in our Sunbelt cities, we still think that there's a whole opportunity with the trophy lifestyle buildings that exist today. Certain buildings like the proscenium that can be bought and substantially renovated to convert into lifestyle office and as Kennedy alluded to, we do think there'll be an emerging new development opportunity that I think a public REIT touches ourselves with such a strong balance sheet, might be uniquely positioned to capitalize on.

That's helpful. And then, Kennedy, you mentioned a little bit of the flurry of this potential mezz investments and -- but in the past, you guys have also highlighted that with the intention of owning those assets longer term. So we look at some of the mezz investments they've all been paid back. We've seen some of those transact. Maybe just give us a sense of how core pricing has moved, I mean, in the Dallas [indiscernible] properties sold, the Nashville properties in the market. Just give us a sense of what you guys are initially underwriting with that mezz investment to basically where they're transacting, how much of that pricing has moved for core product.

Yes. So all of the men's pieces that we did at the time were low to mid-double digits, and those were unique in that they were cut from existing senior loans. So I think that pricing, depending on where you fall in terms of last dollar is probably still low double digit. The opportunities that we're seeing now are more on the origination side is dealing directly with the sponsor. But I think there's still a -- we're seeing pricing hold generally for core assets in the acquisition side. And so some of the facets you mentioned, I think, are still trading in the low 7 cap so we think that's a nice premium to that. And with the goal of particularly as we're originating it, having a path to open the asset eventually.

That's helpful. And then maybe just one last one for Richard. On the 450,000 square feet of new and expansion leases, is any of that include redevelopment projects? And then maybe as we also think of just larger chunks of portfolio and addressing that, this is a little bit of a ways out, but the NCR building. Is there any opportunity there similar to the situation you guys did with Meta and IBM look at opportunities there as well?

Yes. So there's a small amount of redevelopment activity in that $450 million. There's also obviously activity at [indiscernible] in the development category, though we obviously now have it in our operations and migrated it over there. In terms of NCR, we continue to have a very good dialogue with in CR. And over time, they still have roughly 7-plus years of term. It's a super high-quality asset, as you know, in a great location. We're open to, over time, exploring creative strategies just like we always are with any customer to explore win-wins. And we've demonstrated a track record of success there over time. It's tough to predict how that particular situation will play out. But I think the real estate, the quality of it, quality of the building and location will win the day ultimately. But right now, we view it as nothing but a great opportunity in the future.

Your next question comes from the line of Vikram Malhotra from Mizuho Financial Group.

Congrats on a strong quarter. I guess, just first, you've been talking about refining the portfolio now for while. You've clearly executed I'm wondering between sort of what's close and what's to be closed in terms of acquisitions and dispositions. How does that all -- where does that leave you in terms of net what you may still the pool that you may need to dispose of as maybe a percent of the portfolio? And is all of this activity sort of accretive or did you give near term?

Vikram. As you know, we've been a very active recycler of assets, certainly over the last 5 years, but even longer dated than that with a clear eye on building the leading lifestyle office portfolio across the Sunbelt because we think that's where there's going to be the highest amount of demand and the greatest opportunity to drive rents and therefore drive earnings. . At the same time, over the last 5 years and really an intentional decision during COVID, when most of our customers who are not here, we engaged many of our properties engaged in pretty substantial renovations as well that now position those properties as lifestyle office building. So as we look at the portfolio as a whole, certainly, the percentage that we would characterize as noncore is in the single-digit percentages. So we think that we're kind of almost done as feeling if the next pandemic came along, we own a portfolio that will continue to drive. That being said, we're always going to have a bottom percentage. And as we see opportunities to upgrade and that we can do that upgrade while staying consistent with our core principles of driving earnings accretion and upgrading the quality of the portfolio and continuing to have a best-in-class balance sheet, we're going to do it. But we think we're kind of almost largely through the noncore and into a world where we can be opportunistic as it relates to trying to recycle and upgrade.

That makes sense. I found your -- the front office, back office comments interesting especially about the pipeline. But maybe just stepping back, given all this the misconceptions around the Sunbelt and particularly back office, have you looked at your portfolio? Are there any stats you can share in terms of what percent of the tenancy is back office? I guess what percentage SaaS? And any other statistics that to give us a flavor of what you described with the pipeline.

Again, I would characterize our percentage of back office and the portfolio of the quality of Cousins is probably among the lowest in the office sector. Again, I'm sure we have some maybe out at North Park, but this would be in the single digits. Again, the narrative about the Sunbelt being back office is a dated one. And these cities have certainly grown up and urbanized. And today, they are attracting kind of the best and the brightest and highly educated workforce who is seeking a vibrant place to live and work, and at the same time, have it more affordable. And that's why companies like Oracle in Goldman Sachs in the Capital Group and Starbucks and others continue to shift their corporate operations into these dynamic markets in the Sunbelt.

Okay. And then just lastly, if I can clarify. As you go back to sort of the stabilized mid-90 low to mid-90s, you now have a pool of assets, perhaps less burden in terms of CapEx. So assuming sort of cash flow recovers over the next 2, 3 years with the occupancy, like where are you comfortable with the payout ratio -- dividend payout.

It, it's Gregg. If you go back and look historically, our payout ratio is lingered deliberately, intentionally in the low to mid-70% as a payout ratio at FAD, we're very comfortable with it being great around there as well. So this quarter was a little bit lower. That's just again because of the lumpiness that I talked about on a previous question. But as I sit here today, we've been comfortable in the low to mid-70s, and I think we'll stay comfortable there. But uncashed of the data for decision we'll talk to them about it, but we've got an active board and they're very interested in kind of our operations, and we talked about the dividend every quarter. And so I don't want to make a decision on their behalf in advance of that. But historically, we've paid out low to mid-70% and I think that's where we'll be in the immediate future. Beyond that, again, there will be a bigger strategic discussion with the Board.

Your next question comes from the line of Andrew Berger from Bank of America.

Great. Congratulations on the strong quarter. Colin, in your opening remarks, you talked about how companies that are deploying AI are prioritizing collaboration. Can you give us a sense of how much space per employee tenants in your portfolio are using today? And whether or not you think this could potentially rise over time as companies invest more in collaborative space?

Well, I guess I kind of zoom out and touch and look back to the kind of the pandemic era where there was a lot of discussion of what was going to happen to employee densities and changing of floor plans. And I'd tell you that over time, where we are today is exactly where we were in 2019 as it relates to densities in our portfolio. Looking forward, again, I don't want to speculate other than the share, we're very active, obviously, in a lot of leasing with major technology companies, financial services and legal. And we're really not seeing any immediate shifts in how they're using space as AI begins to roll out in greater degree.

Great. And obviously, a very strong quarter as it pertains to the cash leasing spread, 15%. Last quarter was pretty similar, excluding North Park. And obviously, leasing price can be a bit lumpy. It sounds like there were some larger leases this quarter. My question is, do you have a general sense of how your portfolio is in place rents compared to market rents today and ultimately, whether or not we should expect to continue seeing these double-digit increases on a cash basis, just given the demand versus supply dynamics that you've been talking about?

Well, it's Colin. I would say that, again, it's hard to predict quarter-to-quarter because of the underlying mix of customers, buildings, markets, but we do think that the portfolio today is still below market as we are now starting to see market rates rise and kind of looking forward at the existing late-stage pipeline. We're confident that we're going to continue to drive rents. And we're hopeful that this time in 3 months, we'll be announcing our 49th consecutive quarter of a positive cash rent roll out.

Your next question comes from the line of Brendan Lynch from Barclays.

Clearly, a lot of progress at New half. What needs to happen before commencing [indiscernible] 2 construction? And how should we think about the mix of products that you might pursue?

It's Kennedy. I think the pre-lease would also make that off. As I mentioned, we feel really good about activity there and partly the speed in which we can deliver new products. So we're actively talking to customers, and we just need to make sure that the pre-leasing demand is there and the rents are there, too. It's the new building will require a little bit higher rent than what we're seeing in the current we're encouraged -- was there a second part of the question?

Just whether it's going to be purely office or there's also a potential for additional resi or retail on the property?

Particular phase is pure office with a little bit of ground mobile retail. We do have rights for future phases that could include a mix of uses.

Okay. And then it sounds like you're slow playing the lease-up of some of the development space given your rent growth expectations. How does that inform your approach to 2027 expirations?

I'm sorry, say that one more time.

Sure. Just it sounds like you're slow playing the lease-up of some of the development space given your rent growth expectations and kind of reserve holding back as those projects are completed because you're getting better rents closer you are to finish the finish line. How does that inform your approach to 2027 expirations? If you expect that market rents are going to continue to be improving, maybe hold off on some of the discussions until they're closer to the expiration date.

Yes. Good question. I would say, generally speaking at Cousins, We've got customers that want to lease space with us, we're trying to meet the market and certainly drive occupancy. You're, I think, referencing 201 or trial, which is a particularly unique situation where we've got a project that is kind of mid construction. And at the same time, we see over the second half of this year, a real shortage of lifestyle space emerging. And so when those 2 collide, we sit here today and look at opportunities, and there is demand today that really reflects what I would characterize as pre-construction economics and in the not-too-distant future, call it, end of the year, first quarter, we think we're going to be able to drive post-construction lease economics. And as Richard alluded to, we had a lot of success at our redevelopment projects with a similar strategy and so meaningfully meaningful increases in rental rates, in some cases, over $5 a foot. So our thinking on this particular asset is if we're able to fix the 9-month increased rental rates by $5 a foot times 300-plus thousand square feet. That's $1.5 million a year, call it, on a 10-year leases, and we think a little bit of patience for that kind of award in this very specific instance is certainly worth the trade-off.

Your next question comes from the line of Dylan Burzynski from Green Street.

Just wanted to talk a little bit more about sort of the corporate migration trends that you guys are seeing Apollo, obviously, is reported in the market, you've seen the moves from Starbucks, KVHome. I guess as we look at the pipeline today in terms of that activity, would you say it's largely geared to those big corporate users that are either looking to move headquarters or plan to large, call it, headquarters to? Or is it more predominantly concentrated in the smaller output companies looking for smaller outputting the Southeast.

Dylan, this is Richard. I think it's a mix of both, frankly. We're still continuing to see the large in migration. I think that's only going to accelerate, as we've talked about. But there are certainly instances where I think KV may be a good instance to reference that it is truly a headquarter's relocation, but it's not a 200,000-foot user at the same time, but we're continuing to see in Phoenix, in particular, a steady stream of of companies that probably have a requirement for a headquarters of 1, 2 floors coming out of California and to add up. And so we're very encouraged by both the kind of smaller, if you will, flow of headquarters relocations also could be outpost, but the big ones are still there, and they're in Dallas without a doubt. We've talked about Charlotte, where some of these requirements have landed in the past couple of months that are 200,000 square feet of piece and taking up quality second-gen space Nashville is a great example of a very large requirement by Oracle that is in order to our benefit. So we're seeing a little bit of everything at this point. And again, we feel like it should do nothing but accelerate.

That's helpful. And then just maybe going back to some of your comments on rent growth. Dallas clearly seeing or have seen strong rent growth over the last 4 years. I think you mentioned sort of call it, cumulative growth. Is it unreasonable to think sort of that's where the rest of your high quality from the office submarkets are headed following that trajectory? Or is there something unique that you guys think has happened in kind of the last several years that might not sort of make that a good parallel for the rest of you guys in submarkets.

Dylan, it's Colin. The demand in Dallas accelerated faster than in some of our other markets. So Dallas got to the inflection point of a landlord favorite market quicker and therefore, rents were able to move. It's just simply supply and demand. Now many of our other markets are at or nearing similar inflection points with the shortage of space due to the lack of supply. . And we're hopeful that you'll see similar instances of being able to drive those rents. You've kind of one example where I'm sitting today in the Buckhead submarket of Atlanta. If a user today needed 100,000 square foot or had 100,000 square foot requirement in a -- what I would characterize as a trophy lifestyle office building, they have exactly 0 options. And so the existing rents in this market today, the top end I would say you're in the kind of mid- to high 50s to $60 range and new construction would cost every bit and that's on a growth basis, new construction would cost over $90 a square foot. So it's a pretty significant leap and would take 3 to 4 years to deliver. So that's one example, as we've alluded to as a increasing demand, decreasing supply should allow us to drive lease economics.

Your next question comes from the line of Upal Rana from KeyBank.

Richard, could you provide a time line on your sign, but now you commenced leases to come online or convert to cash? Just wondering if there's a quarter where we should expect to see most of it come online or is it more spread out?

Sure, sure. So at this point, what we have signed and not yet commenced relative to 2026, which I presume you're probably more focused on I would call that a third quarter timing on a weighted average basis.

Okay. Great. That was helpful. And then maybe for Kennedy, I wanted to ask about competition on the transaction front. Last year, you mentioned a private capital coming into the market, and you know the transactions are starting to pick up. Just wondering how pricing has trended recently and what you're seeing out there?

Yes. We do feel like it's continuing to pick up. As I've said a few times, though, we don't see still a lot of competition in the true [ Trov ] space, particularly as the assets start to get north of $250 million. But we're also encouraged by the fact that people are being more constructive around office opportunities. You're seeing high net worth and family also come back pretty robustly with some new entrants. But I feel like that works to our average as a seller, but as a buyer that we can fill be viewed very positively by sellers, given our ability to move quickly in our cost of capital.

There are no further questions. Presenters, please continue.

Thank you for your time this morning and interest in customer properties. We hope to see many of you in New York at NAREIT in June. In the meantime, if you have any follow-up questions, please do not hesitate to reach out to Roni Imbeaux or Gregg Adzema. Have a great afternoon.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.