Good morning, ladies and gentlemen, and welcome to the Cousins Properties Fourth Quarter Conference Call. At this time, all lines are in a listen-only mode. Following presentation, we will conduct a question-and-answer session. As a reminder, this call is being recorded on Thursday, February 8, 2024. I would now like to turn the conference over to Roper. Please go ahead.

Thank you. Good morning, and welcome to Cousins Properties fourth quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard Hickson, our Executive Vice President of Operations; and Gregg Adzema, our Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. In the supplemental package, the Company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the 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 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 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 a strong fourth quarter at Cousins. On the earnings front, the team delivered $0.65 per share in FFO and same-property net operating income increased 3.5% on a cash basis. We leased 453,000 square feet during the quarter with a positive cash rent roll-up. For the year, we leased approximately 1.7 million square feet with a 5.8% cash rent roll-out. New and expansion leases accounted for 52% of our overall leasing activity during the year. Our weighted average in-place gross rent at year-end 2023 was $46.95 per square foot, which is a 25% increase over year-end 2019. These are terrific results. I will start with a few observations on market fundamentals. First, the return to work in lifestyle office properties is accelerating. Our properties are full of professionals whose lifestyle is centered around collaborating in the office with their teams, at least most of the time. As a result, our parking garages are filling up and demand for our space is increasing despite higher professional layoffs. Second, there is little to no customer or capital demand for old and tall CBD towers or suburban commodity properties. Many of these buildings will stagnate until they are repurposed or torn down. The process has already begun. Third, new supply is shutting in. The math for new development just does not work in today's higher interest rate environment. Thus, the supply of office properties across the United States is likely to contract just as demand begins to improve. The same process played out not that long ago in the retail sector. Remember when retail was dead, until it wasn't; market forces are now rebalancing the office market in a similar manner. In our view, a shortage of lifestyle office properties in the Sun Belt is not far off. Turning to the capital markets, asset-level debt and equity for office is far less available and significantly more expensive today. The investment sales market has temporarily frozen as private players adjust to higher cap rates. Conversely, the public markets show signs of improvement. Coupons in the unsecured debt market, along with implied cap rates and discounts to NAVs for office REITs, have all tightened in recent months. Valuations in the public and private market for office now appear to be converging. A similar dynamic occurred after the global financial crisis and proved to be an attractive investment environment for REITs. In the short term, the narrative for the office sector is likely to get worse before it gets better. Media will focus on high vacancy rates and accelerating loan defaults, and this reporting will not be wrong. However, as I said last quarter, it will be an overgeneralization that conflates commodity office with lifestyle office. At Cousins, our priority is to drive long-term earnings growth while maintaining a strong balance sheet. We have pursued that goal over the last 12 years by aggressively executing an intentional strategy to build the leading Sun Belt lifestyle office REIT, which will benefit from ongoing regional migration and flight to quality trends. And we remain extremely well positioned for an eventual turn in this cycle. Today, we own the premier lifestyle office portfolio in the Sun Belt. Our lease expirations through 2025 are among the lowest in the sector. Our balance sheet is undoubtedly the best-in-class. Net debt-to-EBITDA of 5.1x is the lowest in the office sector. To be clear, the disruptions from the COVID pandemic and the impact of higher interest rates have been setbacks. However, our strategy has proved resilient. Surprising to many, our property net operating income was 23% higher in 2023 compared to 2019. Our 2024 guidance includes FFO that is flat year-over-year. We hope to outperform this and return to growth in the coming years. Let me highlight the building blocks. First, we intend to drive occupancy back over 90% in the intermediate term from 87.6% at year-end 2023. As you know, the office business can be lumpy, so this metric will bounce around from quarter to quarter due to a large move-out or a large commencement. However, on a multi-year basis, we are optimistic that we can return occupancy in our portfolio back to normalized levels. The return to office, Sun Belt migration, flight to quality, and the flight of capital are all trends that will support our efforts. We have multiple competitive advantages, and we plan to grow market share. Second, we intend to allocate capital thoughtfully and accretively on a stabilized basis. We have a track record of identifying creative investment opportunities and funding them with the most efficient source of capital debt, equity, property sales, and JVs. As I mentioned earlier, valuations in the private and public markets appear to be converging. Medium and longer term, the development of market-leading lifestyle office and mixed-use projects will remain a key part of our growth strategy. Our current development and redevelopment projects will be meaningful contributors over the next few years and highlight the value of our development platform. Lastly, a decrease in interest rates would enhance our growth profile. While we obviously can't count on or control this, hopefully, rates have peaked and begin to trend downwards sometime later this year. Any such movement would positively support asset values, transaction activity, and our development efforts. In closing, we are realistic about the many competing forces in the market. However, we built Cousins to thrive during all market conditions. And today, we are in an advantageous position relative to other office companies. We are in the right Sun Belt markets. We own a trophy lifestyle portfolio with modest near-term lease expirations. We have a fortress balance sheet with minimal near-term debt maturities, and we have a well-covered dividend. I believe we have a unique opportunity and optionality in front of us. Before turning the call over to Richard, I want to thank our employees at Cousins, who provide excellent service to our customers. Their dedication, resilience, and hard work continue to propel us forward. Thank you. Richard?

Thanks, Colin. Good morning, everyone. Our operations team wrapped up 2023 with another strong quarter. This past year was filled with significant economic uncertainty, so I’m very proud of our team for ending the year on a high note. To begin, I want to provide an update on WeWork. We currently have four WeWork locations that total 169,000 square feet in Atlanta and Charlotte, making up 1.1% of our annualized rent. While WeWork has not officially rejected any leases, we are actively negotiating to modify our leases at Terminus and 120 West Trinity in Atlanta. At this point, we anticipate that both locations will have their sizes reduced by one-third, or around 26,000 square feet, along with a rent reduction. For 725 Ponce in Atlanta, due to strong demand from traditional office users, we have opted not to negotiate with WeWork at this location and expect the lease to be rejected. Lastly, we expect WeWork to accept the rail yard lease in Charlotte without any modifications. We have a 20% stake in 120 West Trinity and have significant letters of credit backing our leases at both 120 West Trinity and 725 Ponce. Our negotiations with WeWork are ongoing and have been quite fluid so far. Moving on to our results, for the fourth quarter, our total office portfolio's weighted average occupancy and end-of-period lease percentages were 87.6% and 90.9%, respectively. Both of these metrics saw a slight decline compared to the previous quarter, but they finished the year at or above our first quarter levels. Our fourth quarter numbers exclude Hayden Ferry I from the operating portfolio, as it is currently undergoing a full building redevelopment. Hayden Ferry I was previously fully leased and occupied by Silicon Valley Bank, so its removal partially contributed to the sequential decline in occupancy and lease percentages. In the fourth quarter, our team finalized 39 office leases amounting to 453,000 square feet with a weighted average lease term of 7.2 years. This was our second highest quarterly leasing volume in 2023, and our total signed leasing activity for the year was just under 1.7 million square feet, marking another remarkable year for Cousins. Of the leases completed this quarter, 20 were new and expansion leases, making up just over 50% of our activity. Notably, in Nashville, our new mixed-use office development saw 49,000 square feet of new office leasing this quarter, bringing the office portion of the building to 88% leased and the overall project to 22% leased. We are also optimistic about the leasing pipeline, which includes approximately 150,000 square feet of office and retail prospects. We will begin leasing the residential segment of the project this spring. This quarter's leasing activity also featured two significant renewals with Wells Fargo at both Terminus and North Park in Atlanta, totaling 105,000 square feet of renewed space. Additionally, we added a full floor to Apache's long-term headquarters lease at BriarLake Plaza. Overall, I am very pleased with the diversity of our leasing activities in terms of market and industry representation. In terms of lease economics, our average net rent this quarter was $33.53 and $35.15 for the full year. Average leasing concessions this quarter, which include free rent and tenant improvements, were $8.42, remaining within 5% of our third quarter run rate. Consequently, the average net effective rent this quarter was $22.46 and $24.56 for the full year. For context, our average net effective rent in 2023 was among the highest in our history, only falling short of 2021, which included the full building lease for Domain 9 in Austin. Furthermore, second-generation cash rents saw a rise again in the fourth quarter, just under 1%. Some of our lease metrics for this quarter were softer compared to recent quarters, which we attribute to the specific geographic mix of completed leasing activities. In summary, this quarter's leasing activity took place in buildings where the net rents are generally lower than our average. For example, when excluding leases with Apache at BriarLake and Wells Fargo at North Park, second-generation cash rents actually increased by 5.3%. Concerning our leasing pipeline, I’m happy to say we’ve already completed around 200,000 square feet of leasing in the first quarter, with about 70% being new and expansion leases. Our overall leasing pipeline appears robust, and we are encouraged by the early trends we are observing, especially in early-stage prospects and site visits. Over the last few months, we have toured eight prospects representing over 400,000 square feet of total demand at Hayden Ferry I in Phoenix. As always, early-stage demand may take several quarters to materialize into signed leases. It's also important to point out that with few lease expirations through 2026 and likely lower renewal volume, we might see a decline in total volume. Our overall operating portfolio benefits from one of the lowest near-term expiration profiles in the office sector. By the end of 2023, only 19.4% of our annual contractual rent is set to expire through 2026, with a very minimal 4.3% in 2024. However, there are a few expirations that we expect to involve move-outs that we must highlight. As previously mentioned, we expect Accruent to vacate 104,000 square feet at Domain 4 in Austin by the end of August this year. This is our only expiration exceeding 100,000 square feet in 2024. Domain 4 is a 157,000 square foot single-story office building located on prime developable land adjacent to the main retail and entertainment area of the domain. Thus, we will likely restrict future leasing in this building to short-term agreements to preserve our options for this land. In 2025, we have only two customers with expirations exceeding 100,000 square feet. The first is Bank of America at Fifth Third Center in Charlotte, currently leasing 317,000 square feet until the end of July 2025. We have initiated discussions with Bank of America regarding this expiration, and they have indicated a preference to consolidate employees within properties they own in Charlotte. Based on these discussions, we consider them likely to move out upon expiration, although that is still about 18 months away. Fifth Third Center offers timeless architecture, prime visibility directly on Tryon Street in Uptown Charlotte, and excellent access and parking. Given its appealing design, we are already working on plans to enhance this property with new amenities and upgrades similar to those we have successfully implemented in other projects throughout our Sun Belt portfolio. The other significant expiration in 2025 is a 112,000 square foot customer in the domain, set to expire in September 2025, nearly two years from now. Our Austin team has begun discussions with this customer, and while it’s still early, they are optimistic about the potential outcome. Finally, as we look at 2026, we see even fewer expirations than in 2025, with only two customers, each slightly over 100,000 square feet, scheduled to expire. We are already in talks to potentially renew one of those customers early. In summary, despite anticipating one larger-than-usual probable move-out in 2025, which would account for about 1.5% of total portfolio occupancy, alongside our expectations regarding WeWork, we believe that the current leasing demand, our low near-term lease expiration profile, and over 730,000 square feet of new and expansion leases signed but not yet commenced will support our occupancy level through the end of 2024. We hope to begin increasing occupancy by late 2025 and into 2026. As for market dynamics, the U.S. has shown some stabilization in office fundamentals, particularly in the high-quality segment, with a notable acceleration in return-to-office metrics. Leasing activity picked up in the fourth quarter as larger deals made a comeback. According to JLL, total leasing volume in 2023 for the Atlanta metro area reached nearly 8.8 million square feet, surpassing levels seen in 2019, 2020, and 2021. According to Cushman & Wakefield, demand for high-quality, well-located spaces in Midtown increased by 19.2% quarter-over-quarter. In addition, sublease availability in Atlanta decreased by 5% in the last quarter of 2023 compared to the previous quarter. Our Atlanta team successfully signed 217,000 square feet of leases in the fourth quarter across all of our submarkets. In Austin, the office market ended the year with positive momentum in leasing activity, achieving the strongest quarterly volume since Q2 2022 at 1.3 million square feet, based on JLL data. Additionally, sublease availability in Austin remained stable compared to previous quarters, diverging from its previous upward trend since early 2022. By the end of the fourth quarter, our Austin portfolio was 94.4% leased, with very limited immediate availability. I’d like to express my gratitude to our dedicated operations team, whose efforts contributed to making 2023 a successful year. We are looking forward to a productive 2024.

Thanks, Richard. Good morning, everyone. I'll begin my remarks by providing a brief overview of our results as well as some details on our same property performance. Then I'll move on to our development pipeline, followed by a quick discussion of our balance sheet before closing my remarks by providing some color around our initial '24 earnings guidance. As Colin stated upfront, our fourth quarter earnings were solid, and the operating metrics behind them remain strong. Second-generation cash leasing spreads were positive for the 39th straight quarter. That's almost 10 uninterrupted years of rent growth. Leasing velocity remained consistent with pre-COVID levels and same property year-over-year cash NOI increased. It was a very clean quarter. There were no unusual or non-recurring items of note. Subsequent to quarter end, we entered into a floating to fixed interest rate swap on the remaining $200 million of our $400 million term loan maturing in March of 25. The swap fixes so for a 4.67% through the initial maturity date. For the full year, we reported FFO of $2.62 per share. This is up from our original '23 guidance with a midpoint of $2.58 per share, despite a $0.01 per share negative impact from the SVB bankruptcy earlier in the year. This outperformance versus our original forecast was primarily driven at the properties. Full year same property NOI was a solid 4.2% on a cash basis, which was our best performance since 2019. Digging a little deeper into our same-property performance during the fourth quarter, cash NOI increased 3.5% compared to last year. Cash revenues increased 60 basis points, while expenses decreased 4.6%. Consistent with last quarter, these numbers were impacted by property taxes. In addition to our regular appeals of tax assessments, our portfolio also benefited during the second half of the year from the well-publicized tax cuts that were recently approved by Texas voters. The majority of our tax savings was in Austin, which is largely a triple net market and therefore, lower property taxes reduced both revenues and expenses during the quarter. Before moving on, I also wanted to point out the continued positive trend in parking revenues we saw during the fourth quarter. Overall, total parking revenues increased another 3% over the prior quarter and were up 15% for all of '24 compared to '23. Turning to our development efforts. The current development pipeline is comprised of 50% interest in Neuhoff in Nashville and 100% of Domain 9 in Austin. Our share of the remaining estimated development costs for these two projects is $70 million, which will be funded by a combination of our Neuhoff construction loan and our operating cash flow. Looking at our balance sheet. Net debt-to-EBITDA is an industry-leading 5.1x. We have no significant debt maturities until July of 25. Our liquidity position remains strong with only $185 million outstanding on our $1 billion credit facility and our dividend remains well covered, with an FAD payout ratio of 72% in 2023. As a quick reminder, our current common dividend is over 10% higher than it was pre-COVID. We are in a very small number of office REITs that have actually increased their dividend since 2019. I'll close by providing our initial 2024 guidance. We currently anticipate full year '24 FFO between $2.57 a share and $2.67 a share with a midpoint of $2.62. Our guidance is very clean. There are no significant one-time non-recurring items, including unusual term fees. There are no property acquisitions, property dispositions, development starts, or capital market transactions. If any of these do take place, we'll update our earnings guidance accordingly. As Richard discussed earlier, we're in active negotiations with WeWork while nothing is finalized, our guidance is consistent with the expectations Richard outlined. We have conservatively assumed a February 1 effective date for all of these potential outcomes. Our guidance does not include any payments of our unsecured claim in the SVB bankruptcy case, which we currently estimate will be approximately $10 million. The exact amount and timing of recovery against this claim is not yet known, but unsecured SVB bonds are currently trading around $0.55 to $0.60 on the dollar. So, we do anticipate there will eventually be significant value in this claim. There's no impact on our '24 guidance from the potential Bank of America lease expiration at Fifth Third Center that Richard discussed earlier in the call. And while we're not providing guidance beyond '24 at this time, we anticipate the negative impact of this probable expiration on '25 and '26 numbers will be more than offset by the stabilization of several developments and redevelopments during that period. Bottom line, our fourth quarter results were solid, driven by strong same property performance. Our best-in-class leverage and liquidity position remains intact, and our dividend remains well covered. Our '24 earnings guidance is flat with '23 numbers as anticipated higher interest expense and WeWork losses are offset by forecasted increase in NOI from our existing properties as well as our new developments and redevelopment deliveries. With that, let me turn the call back over to the operator.

Your first question comes from Jay Poskitt from Evercore ISI. Your line is now open.

I was wondering if you could just be a little more specific on the timing for getting back to that occupancy to 90%. I know you kind of defined it as the intermediate term, but any more color there would be great.

Yes. As we don't provide forward earnings guidance, we're not going to provide forward occupancy, specific forward occupancy guidance. But I think Richard walked through the building blocks of kind of the ins and outs there. And as I said, we do feel very comfortable over a multi-year process that will drive earnings back up over 90%.

That's helpful. And then just on a more broader view. I was wondering if you could just provide any commentary on your markets, which ones you're most excited about and which ones you're more cautious as we head into '24?

Yes. Broadly speaking, the Sun Belt continues to perform very well, particularly in our markets. The strongest leasing activity to date has been in Atlanta, which has a very diverse customer base. We have a lot of excellent space here, and we have successfully leased it. Additionally, the Tampa market has been highly active and likely has the lowest vacancy rate within our footprint currently. In Phoenix, we are seeing significant activity, which I attribute to the overall market conditions and a specific repositioning project at Hayden Ferry that is quite exciting.

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

The commentary on quarter-to-date leasing activity was helpful, but just thinking about your overall leasing pipeline. Can you just talk about how much of the activity you guys are engaged in today is driven by tenants that have lease expirations and are either renewing or relocating at the same square footage or downsizing versus tenants that are either adding demand that's new to the market or expanding within the market and maybe how those proportions might be trending?

Yes, this is Richard. If we reflect on 2023 as a reference point, we can see that the customers we renew are generally expanding rather than contracting. However, there is a trend in specific industries, particularly technology and a bit in financial services, where customers tend to reduce their space on average during renewals. Overall, we maintain an optimistic outlook regarding our pipeline and the products available for lease. We're also observing some interesting inbound activity and new market developments in certain areas. While it may not be robust or indicative of large primary headquarters leasing, we are seeing some potential with regional headquarters moving into markets such as Tampa, Phoenix, and Atlanta. We are optimistic about the favorable developments in our early-stage pipeline.

Very helpful, Richard. And then just my second question. You guys are sitting just above 5x on a debt-to-EBITDA basis right around your kind of targeted long-term leverage goal. Can you just talk about how much dry powder you think you have for opportunistic investments? Where you'd be comfortable bringing that leverage up to you for the right opportunity? And just how much investment capacity that affords you? And also how you think about using equity or OP units in a deal to keep leverage levels down?

Yes, Blaine, we have significant capacity. This low leverage profile is often viewed as defensive, which it is, and it has certainly provided us with support over the years. However, we consider our balance sheet and that low leverage from an offensive standpoint. In the past, we've executed some of our most interesting transactions during dislocation periods and have increased leverage as high as 5.5x or even higher, but we prioritized reducing it whenever possible. Today, if the right opportunities arise, we will take advantage of them. Our willingness to do so depends on finding products that align with our lifestyle office characteristics and whether the transactions will enhance earnings and provide accretion. We evaluate this comprehensively, considering our funding sources, whether through debt, equity, or property sales, while focusing on investing in high-quality lifestyle office properties in a way that benefits our shareholders once stabilized.

Your next question comes from Camille Bonnel from Bank of America. Your line is now open.

Your portfolio has such a wide healthy spread between leased and occupied space. Can you quantify how much of this is commencing in 2024? And from a timing perspective, are the commencements pretty even throughout the year or back half weighted?

Camille, it's Richard. From the $730,000 mentioned in my prepared remarks, around $650,000, a little over that, will occur in 2024, primarily weighted towards early second quarter.

Appreciate the details. And the color also on the lower leasing spreads in the fourth quarter. As we look forward, can you provide any details around the mark-to-market across leases rolling over the year?

Camille, it's Colin. As Richard mentioned, the mix this past quarter affected those leasing spreads. Looking ahead for the year, I want to focus on our late-stage pipeline where we have clear visibility, and we hope to continue to achieve positive rent rollouts.

Okay. And if I can sneak one more in. Just more broadly in the submarkets where you're seeing positive net absorption. Can you talk to the type of pricing power landlords or yourself have? Is there a possibility for office rents in your market to continue to grow even with the challenges for the industry?

I believe that currently, the market still leans towards tenants. However, when we specifically look at lifestyle office properties, we see various market dynamics at work. The total supply of office space in the United States is decreasing in real time, and with limited new construction alongside a resurgence in demand, we may soon see a shift in favor of high-quality properties. While rents appear to be stable right now, I anticipate that in the next 12 to 24 months, the market might adjust, giving more pricing power back to owners of lifestyle office spaces like Cousins.

Your next question comes from Tony Paolone from JPMorgan. Your line is now open.

Okay. First one, just for Richard, I just want to clarify, make sure I caught your comments right. So you think occupancy at the end of 2024 in your guidance is better apples-to-apples than where you ended '23. Is that right?

Generally in line.

Okay. All right. And then, Colin, you talked about just playing offense and you have the balance sheet capacity. Can you maybe talk to what you think deals that start to emerge look like economically in terms of where you think maybe either cap rates or IRRs or whether you're going in as a debt investment, like what this might look like as it unfolds?

Yes, Tony, that's a great question. As I've mentioned, we are noticing a growing number of promising opportunities that are becoming increasingly actionable. We have been very patient over the last 12 to 24 months, and I believe we will be rewarded for that patience. I think, ultimately, as we invest, the cap rates will be higher and the internal rates of return will be better than they were 24 months ago. Ultimately, how these investments perform is less about a specific cap rate and more about our overall approach, particularly in investing in lifestyle office properties and using the most efficient source of capital to drive stabilization and growth for our shareholders. Therefore, it's challenging to pinpoint a specific cap rate because that is not what primarily drives our investment decisions.

Okay. And if I could just sneak one more in. Just on Neuhoff. I think in the past, you talked about that being product that once completed, can maybe drive a bit more traffic because it's just the nature of it, how unique it is. Just wondering if you can comment on what that looks like now and just if anything shifted either on the demand side in that market or just if there's any competitive supply that's getting in the way?

No, it is certainly the most unique property in Nashville due to its adaptive reuse aspect and the combination of office space, multifamily units, and an attractive retail and food hall along the Cumberland River. We believe this will continue to generate strong demand, which we are observing across all types of industries, including professional services, marketing and advertising, legal, and financial services. There is widespread interest. Our goal is to achieve 25,000 to 50,000 square feet of leasing each quarter and ultimately establish a diverse multi-tenant rent roll at Neuhoff to enhance the apartments and retail offerings.

Next question comes from John Kim from BMO Capital Markets. Your line is now open.

Colin, on your opening remarks, discussing older commodity assets being repurposed. What are you seeing in your markets as far as what they're being repurposed into? Is it another type of office like medical or lifestyle? Or is it other asset types? And is there any opportunities for Cousins to participate in this?

Yes, John, we are beginning to see this trend develop. It seems like every week there is a media headline regarding a building being demolished or repurposed. There are several specific instances in our markets. If I had to summarize the situation, more suburban office buildings and older commodity office spaces are being acquired at very low prices, and those properties are often being torn down to make way for multifamily residential and mixed-use developments. Larger, older towers can be costly to demolish, leading to those assets trading at low prices, where developers are considering converting them into multifamily or hospitality projects, or a mix of both. From our viewpoint, we have explored some of these opportunities and will continue to evaluate them. However, our broader focus remains on assets that we believe have strong potential to be converted into lifestyle office spaces.

Okay. That's helpful. My second question is just a clarification on Domain 4. Is your plan to place this asset into redevelopment once accruent leaves? Or are you looking to execute short-term leases? I think that was mentioned as an option and keep it as is until you form development plans?

Yes. I think we're at a point where we're not ready to make that decision. As Richard mentioned, that accruent lease does expire later this year. There is one other customer in the building that's got an exploration, a year or so later. And so our intention is to definitely not sign any long-term leases in the short term. If we can find customers who want space for a very short specific period, we're absolutely open to that and if we can drive some NOI that way, we'll consider it. But I think we'll kind of continue to wait and see and make a decision on specifically what we do with that asset at a later date.

Your next question comes from Upal Rana from KeyBanc Capital Markets. Your line is now open.

Just on the three leases with WeWork, that you anticipate to reduce or cancel. What are your plans associated to that going forward? Yes, I'd be curious on any color there.

What are our plans on the three WeWork leases?

Yes, with the ones that are going to be reduced and potentially canceled?

I believe that with WeWork, we have three leases to consider. One lease in Charlotte is performing strongly, so we don't expect any modifications there. For the other two leases, we plan to make changes that will reduce their space and lower the rent. We think these two locations are in buildings we own that our customers appreciate as amenities. We hope that after the bankruptcy, WeWork will emerge as a stronger company with minimal debt, becoming a valuable partner for us. Regarding the 725 location, as Richard mentioned earlier, we felt there was too much demand from traditional office users interested in that space, so we decided not to proceed with restructured economics and chose to pass.

Okay. Got it. That was helpful. And then just on Neuhoff coming online in June, where are rents and concessions there today? And where is the current development yield relative to when you originally started construction?

Yes. Neuhoff continues to perform very well. As we evaluate the net effect of rents, I can say that the tenant improvements are higher than we initially expected, but so are the rents. Therefore, the net effect of rents has been essentially flat to date. As we progress towards finalizing the project, we will continue to monitor this, and if we need to provide more tenant improvements to stabilize that timeline more quickly, we will certainly consider it. However, so far, the net effective rents have remained flat. Regarding the overall development yield, I would say it is certainly lower than when we began the project, which can be attributed solely to the increased cost of our interest expense. That is a floating rate loan, and obviously, the SOFR has changed, resulting in an interest expense on that project that has exceeded our original expectations.

Okay. Great. If I can ask one more question, Richard, you mentioned that Austin has been experiencing some decent momentum. Can you provide more details on that? What is happening on the ground there, and what is driving that momentum?

Well, I guess to clarify that I think I'd call Austin still less active than our other markets at this point. We are seeing positive dynamics as in, I'd say, the sublease listings have stabilized, and that's been a big dynamic in Austin for a little while now. So that, to me, is a nice leading indicator of things starting to potentially stabilize in turn, but it is still more quiet, let's say, than our other markets.

Your next question comes from Dylan Burzinski from Green Street. Your line is now open.

Most of my questions have been asked, but I guess just going back to sort of as you guys are looking at acquisition opportunities, are there certain markets across your footprint that are currently more attractive than others? Whether it’d be because of just a better outlook for supply and demand? Or whether it’s because pricing has sort of degraded a little bit more?

We will definitely pursue opportunities in any of our markets, as we have strong confidence in all of them. Some markets may currently be stronger than others, primarily due to supply and the time needed to absorb new supply in specific areas. Overall, we want to increase our investments in cities beyond just Atlanta and Austin. We are particularly interested in markets like Charlotte, Nashville, Dallas, and Tampa to enhance our geographic diversification over time. However, this doesn't mean we won't go after compelling opportunities in Atlanta or Austin, where we have considerable expertise and solid platforms. Still, in the longer term, I would like to see our geographic diversification improve a bit.

Your next question comes from Peter Abramowitz from Jefferies. Your line is now open.

Yes. One of the themes that's been emerging this quarter is either lenders or partners that are pretty willing to take on unfavorable terms just to get out of office and trim their exposure there. So just curious, if you've seen any signs of that in your markets, and what's the role of distress overall in the transaction market right now?

Peter, I appreciate the question. Yes, we are beginning to see that. There are a couple of different trends coming together. Lenders and many investors in real estate are trying to reduce their office exposure. At the same time, we are witnessing catalysts for activity, including a significant amount of debt maturities occurring in 2024. Additionally, there's increased leasing activity that requires capital for tenant improvements and leasing commissions, prompting discussions about who will fund those needs. All of these factors create transaction and investment opportunities. That’s why we are confident that this year we will start to see more actionable investment opportunities for Cousins.

There are no further questions at this time. Mr. Connolly, please proceed with your closing remarks.

Thank you all for joining us today and your continued interest in Cousins Properties. We look forward to hopefully seeing you soon, but please feel free to reach out to our team with any questions in the interim. Have a great day.

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