Cousins Properties Included (NYSE:CUZ) This autumn 2023 Outcomes Convention Name February 8, 2024 11:00 AM ET
Firm Members
Pamela Roper – Govt Vice President, Common Counsel and Company Secretary
Colin Connolly – President and Chief Govt Officer
Richard Hickson – Govt Vice President, Operations
Gregg Adzema – Chief Monetary Officer
Convention Name Members
Jay Poskitt – Evercore ISI
Blaine Heck – Wells Fargo
Camille Bonnel – Financial institution of America
Tony Paolone – JPMorgan
John Kim – BMO Capital Markets
Upal Rana – KeyBanc Capital Markets
Dylan Burzinski – Inexperienced Avenue
Peter Abramowitz – Jefferies
Operator
Good morning, girls and gents, and welcome to the Cousins Properties Fourth Quarter Convention Name. At the moment, all strains are in a listen-only mode. Following presentation, we’ll conduct a question-and-answer session. [Operator Instructions] As a reminder, this name is being recorded on Thursday, February 8, 2024.
I might now like to show the convention over to Roper. Please go forward.
Pamela Roper
Thanks. Good morning, and welcome to Cousins Properties fourth quarter earnings convention name. With me in the present day are Colin Connolly, our President and Chief Govt Officer; Richard Hickson, our Govt Vice President of Operations; and Gregg Adzema, our Chief Monetary Officer.
The press launch and supplemental package deal have been distributed yesterday afternoon in addition to furnished on Kind 8-Ok. Within the supplemental package deal, the Firm has reconciled all non-GAAP monetary measures to essentially the most immediately comparable GAAP measures in accordance with the Reg G necessities. Should you didn’t obtain a duplicate, these paperwork can be found by the quarterly disclosures and supplemental SEC data hyperlinks on the Investor Relations web page of our web site, cousins.com.
Please bear in mind that sure issues mentioned in the present day might represent forward-looking statements throughout the that means of federal securities legal guidelines, and precise outcomes might differ materially from these statements because of dangers and uncertainties and different components together with the chance components set forth in our annual report on Kind 10-Ok and our different SEC filings.
The Firm doesn’t undertake any responsibility to replace any forward-looking statements, whether or not on account of new data, future occasions or in any other case. The complete declaration relating to forward-looking statements is offered within the supplemental package deal posted yesterday, and an in depth dialogue of potential dangers is contained in our filings with the SEC.
With that, I am going to flip the decision over to Colin Connolly.
Colin Connolly
Thanks, Pam, and good morning, everybody. We had a robust fourth quarter at Cousins. On the earnings entrance, the staff delivered $0.65 per share in FFO and same-property internet working earnings elevated 3.5% on a money foundation. We leased 453,000 sq. toes throughout the quarter with a optimistic money lease roll up.
For the 12 months, we leased roughly 1.7 million sq. toes with a 5.8% money lease rollout. New and enlargement leases accounted for 52% of our general leasing exercise throughout the 12 months. Our weighted common in-place gross lease at year-end 2023 was $46.95 per sq. foot, which is a 25% enhance over year-end 2019. These are terrific outcomes.
I’ll begin with a couple of observations on market fundamentals. First, the return to work in life-style workplace properties is accelerating. Our properties are full of pros whose life-style is centered round collaborating within the workplace with their groups, a minimum of more often than not. Because of this, our parking garages are filling up and demand for our area is rising regardless of greater skilled layoffs.
Second, there’s little to no buyer or capital demand for outdated and tall CBD towers or suburban commodity properties. Many of those buildings will stagnate till they’re repurposed or torn down. The method has already begun. Third, new provide is shutting in. The maths for brand new growth simply doesn’t work in in the present day’s greater rate of interest atmosphere. Thus, the availability of workplace properties throughout america is more likely to contract simply as demand begins to enhance. The identical course of performed out not that way back within the retail sector.
Bear in mind when retail was lifeless, till it wasn’t, market forces at the moment are rebalancing the workplace market in the same method. In our view, a scarcity of life-style workplace properties within the Solar Belt shouldn’t be far off. Turning to the capital markets, asset degree debt and fairness for workplace is much much less accessible and considerably costlier in the present day. The funding gross sales market has briefly frozen as non-public gamers modify to greater cap charges.
Conversely, the general public markets present indicators of enchancment. Coupons within the unsecured debt market, together with implied cap charges and reductions to NAVs for workplace REITs have all tightened in current months. Valuations in the private and non-private marketplace for workplace now seem like converging. The same dynamic occurred after the worldwide monetary disaster and proved to be a lovely funding atmosphere for REITs.
Within the brief time period, the narrative for the workplace sector is more likely to worsen earlier than it will get higher. Media will concentrate on excessive emptiness charges and accelerating mortgage defaults, and this reporting won’t be incorrect. Nevertheless, as I mentioned final quarter, it will likely be an overgeneralization that conflates commodity workplace with life-style workplace.
At Cousins, our precedence is to drive long-term earnings progress whereas sustaining a robust steadiness sheet. We have now pursued that purpose during the last 12 years by aggressively executing an intentional technique to construct the main Solar Belt life-style workplace REIT, which is able to profit from ongoing regional migration and flight to high quality tendencies.
And we stay extraordinarily properly positioned for an eventual flip on this cycle. At the moment, we personal the premier life-style workplace portfolio within the Solar Belt. Our lease expirations by 2025 are among the many lowest within the sector. Our steadiness sheet is undoubtedly the best-in-class. Internet debt-to-EBITDA of 5.1x is the bottom within the workplace sector.
To be clear, the disruptions from the COVID pandemic and the affect of upper rates of interest have been setbacks. Nevertheless, our technique has proved resilient. Stunning to many, our property internet working earnings was 23% greater in 2023 in comparison with 2019. Our 2024 steering consists of FFO that’s flat year-over-year. We hope to outperform this and return to progress within the coming years.
Let me spotlight the constructing blocks. First, we intend to drive occupancy again over 90% within the intermediate time period from 87.6% at year-end 2023. As you recognize, the workplace enterprise could be lumpy, so this metric will bounce round from quarter-to-quarter because of a big move-out or a big graduation. Nevertheless, on a multiyear foundation, we’re optimistic that we will return occupancy in our portfolio again to normalized ranges.
The return to workplace, Solar Belt migration, flight to high quality, within the flight of capital are all tendencies that may help our efforts. We have now a number of aggressive benefits, and we plan to develop market share. Second, we intend to allocate capital thoughtfully and accretively on a stabilized foundation. We have now a monitor file of figuring out artistic funding alternatives and funding them with essentially the most environment friendly supply of capital debt, fairness, property gross sales and JVs.
As I discussed earlier, valuations within the non-public and public markets seem like converging. A number of homeowners and lenders. Medium and long run, the event of market-leading life-style workplace and mixed-use initiatives will stay a key a part of our progress technique.
Our present growth and redevelopment initiatives can be significant contributors over the subsequent few years and spotlight the worth of our growth platform. Lastly, a lower in rates of interest would improve our progress profile. Whereas we clearly cannot rely on or management this, hopefully, charges have peaked and start to development downwards someday later this 12 months.
Any such motion would positively help asset values, transaction exercise and our growth efforts. In closing, we’re practical in regards to the many competing forces out there. Nevertheless, we constructed cousins to thrive throughout all market circumstances.
And in the present day, we’re in an advantageous place relative to different workplace corporations. We’re in the fitting Solar Belt markets. We personal a trophy life-style portfolio with modest near-term lease expirations. We have now a fortress steadiness sheet with minimal near-term debt maturities, and we’ve a well-covered dividend. I consider we’ve a singular alternative and optionality in entrance of us.
Earlier than turning the decision over to Richard, I need to thank our workers at Cousins, who present wonderful service to our clients. Their dedication, resilience and arduous work proceed to propel us ahead.
Thanks. Richard?
Richard Hickson
Thanks, Colin. Good morning, everybody. Our operations staff closed out 2023 with one other stable quarter. This previous 12 months was marked by unprecedented financial uncertainty, so I am very happy with our staff for ending the 12 months robust.
To start out, I’ve an replace on WeWork. As a reminder, we’ve 4 WeWork places totaling 169,000 sq. toes in Atlanta and Charlotte, they usually symbolize 1.1% of our annualized lease at share. Whereas WeWork has not formally rejected any of our leases, we’re in lively negotiations to change our leases at Terminus and 120 West Trinity in Atlanta. As of in the present day, we count on the dimensions of each of these places to be lowered by one-third or about 26,000 sq. toes at share and for lease to be lowered.
Concerning 725 Ponce in Atlanta, because of robust demand from a number of conventional workplace customers, we’ve determined to not negotiate with WeWork at this location and count on the lease to be rejected. Lastly, we count on WeWork to simply accept the rail yard lease in Charlotte with out modification. As a reminder, we’re a 20% proprietor of 120 West Trinity and we’ve significant letters of credit score supporting the leases at each 120 West Trinity and 725 Ponce. I might be aware our negotiations with WeWork are ongoing and have been very fluid in the present day.
On to outcomes. For the fourth quarter, our complete workplace portfolio weighted common occupancy and end-of-period lease percentages have been 87.6% and 90.9%, respectively. Each metrics have been down modestly sequentially and completed the 12 months at or above the place we stood within the first quarter. Our fourth quarter numbers exclude Hayden Ferry I from the working portfolio as it’s now underneath a full constructing redevelopment. Hayden Ferry I used to be beforehand 100% leased and occupied by Silicon Valley Financial institution, so its elimination was a partial driver of the sequential occupancy and lease decline.
Within the fourth quarter, our staff accomplished 39 workplace leases totaling 453,000 sq. toes with a weighted common lease time period of seven.2 years. This was our second highest quarterly sq. footage quantity of 2023, and our complete signed exercise for the 12 months was slightly below 1.7 million sq. toes, one other implausible 12 months of leasing exercise for Cousins. 20 of our accomplished leases this quarter have been new and enlargement leases, representing simply over 50% of our exercise. Notably, in Nashville, our new workplace mixed-use growth, we accomplished 49,000 sq. toes of recent workplace leasing this quarter.
This brings the workplace portion of the adaptive reuse constructing to 88% and the general venture to 22% lease. We additionally stay inspired by the pipeline, which incorporates roughly 150,000 sq. toes of workplace and retail prospects. We may even start leasing the residential element of the venture this spring. Our accomplished exercise this quarter additionally included two essential renewals with Wells Fargo at each Terminus and North Park in Atlanta, combining for 105,000 sq. toes of renewed area.
We additionally added a full flooring to Apache’s long-term headquarters lease at BriarLake Plaza. Total, I am more than happy with the variety of our leasing exercise, each from a market and {industry} perspective. Concerning lease economics, our common internet lease this quarter got here in at $33.53 and $35.15 for the complete 12 months. This quarter, common leasing concessions, outlined because the sum of free lease and tenant enhancements have been $8.42, which is inside 5% of our third quarter run fee. Because of this, common internet efficient lease this quarter got here in at $22.46 and was $24.56 for the complete 12 months.
For some perspective, our common internet efficient lease in 2023 was the best in our historical past except for solely 2021, which included the complete constructing lease for Area 9 in Austin. Lastly, second-generation money rents elevated once more within the fourth quarter at slightly below 1%. A few of our lease metrics this quarter have been softer in comparison with current quarters, and we attribute this to the geographic mixture of accomplished leasing exercise.
Briefly, our leasing this quarter was in buildings the place internet rents are usually decrease than our common. For instance excluding our exercise with Apache of BriarLake and Wells Fargo at North Park second-generation money rents elevated 5.3%. With regard to our leasing pipeline, I’m happy report that we’ve already accomplished at about 200,000 sq. toes of leasing within the first quarter, of which about 70% are new and enlargement leases.
Our general leasing pipeline is wholesome, and we’re inspired by the tendencies we’re seeing to start the 12 months, particularly within the early stage pipeline and our tour exercise. As an example, during the last couple of months, we’ve toured eight prospects representing over 400,000 sq. toes of mixture demand at Hayden Ferry I in Phoenix. As at all times, early stage demand can take a number of quarters to translate into signed leasing exercise. I additionally need to be aware that as a result of we’ve so few expirations by 2026 and due to this fact, seemingly decrease renewal quantity to finish, this might translate into decrease complete quantity.
As I simply talked about, our general working portfolio continues to take pleasure in among the lowest near-term expirations in all the workplace sector. As of the tip of 2023, we solely had 19.4% of our annual contractual lease expiring by 2026, together with a really low 4.3% in 2024. Nevertheless, as is at all times the case, we do have some expirations that we count on to be move-outs which are value noting. As mentioned on our final name, on the finish of August of this 12 months, we count on accruent to vacate 104,000 sq. toes at Area 4 in Austin. This additionally occurs to be our solely expiration better than 100,000 sq. toes in 2024.
As a reminder, Area 4 is a 157,000 sq. foot single-story workplace constructing on prime developable land adjoining to the primary retail and leisure hall of the area. Because of this, we’ll nearly actually restrict future leasing on this constructing to brief time period as these offers in an effort to keep our optionality on this land. Trying to 2025, we solely have two clients expiring which are better than 100,000 sq. toes. The primary I’ll focus on is Financial institution of America at Fifth Third Heart in Charlotte presently leasing 317,000 sq. toes by the tip of July 2025.
We have now begun to debate this expiration with Financial institution of America and have shared that they would favor to find Charlotte company workers and properties owned by the financial institution the place potential. Primarily based on these discussions, we view the financial institution as a possible transfer out upon expiration, although that date remains to be about 18 months from now. Fifth Third Heart has timeless structure, a terrific presence immediately on Tryon Avenue in Uptown Charlotte and wonderful entry and parking.
Given its good bones, we’re already working to finalize plans to reenergize this property with facilities and upgrades just like these we’ve efficiently accomplished at initiatives throughout our Solar Belt portfolio. The opposite 2025 expiration of dimension is a 112,000 sq. foot buyer within the area expiring in September of 2025 practically two years from now. Our Austin staff has begun to interact with this buyer. And whereas very early, the staff is inspired.
Lastly, trying into 2026, we’ve even decrease general expirations than in 2025 and solely two clients, somewhat over 100,000 sq. toes every set to run out. We’re already in discussions to probably renew a kind of clients early. In sum, even with the one bigger than common possible transfer out in 2025, which is about 1.5% of complete portfolio occupancy and our expectations round WeWork, the tailwinds of present leasing demand, a low near-term lease expiration profile and over 730,000 sq. toes of recent and enlargement leases signed however not but commenced that symbolize true absorption. We count on to keep up our occupancy degree by the tip of 2024 after which hopefully start to construct occupancy by the tip of 2025 and into 2026.
Turning to some market-level dynamics. The U.S. continued to indicate some stabilization of workplace fundamentals, particularly within the high-quality section and the return to workplace is accelerating by most metrics. Leasing exercise additionally accelerated within the fourth quarter as bigger lease offers started to return to the market. In response to JLL, complete quantity in 2023 within the Atlanta metro space totaled nearly 8.8 million sq. toes, above ranges from 2019, ’20 and ’21.
In response to Cushman & Wakefield, demand stays robust for the best high quality and finest positioned area in Midtown, which is up 19.2% quarter-over-quarter. Additional, sublease exercise — or sublease availability in Atlanta dipped within the remaining three months of 2023, down by 5% from the third quarter. Our Atlanta staff signed a stable 217,000 sq. toes of leases within the fourth quarter spanning all of our submarkets. In Austin, the workplace market concluded the 12 months with optimistic momentum surrounding leasing exercise seeing the strongest quarterly degree since Q2 2022 at 1.3 million sq. toes per JLL.
Moreover, diverging from its upward development since early 2022, sublease availability remained steady quarter-over-quarter in Austin. On the finish of the fourth quarter, our Austin portfolio was 94.4% leased, with comparatively little quick availability. As at all times, I need to thank our proficient operations staff whose arduous work made 2023 a profitable 12 months. We look ahead to a productive 2024 collectively.
Gregg?
Gregg Adzema
Thanks, Richard. Good morning, everybody. I am going to start my remarks by offering a quick overview of our outcomes in addition to some particulars on our identical property efficiency. Then I am going to transfer on to our growth pipeline, adopted by a fast dialogue of our steadiness sheet earlier than closing my remarks by offering some coloration round our preliminary ’24 earnings steering.
As Colin said upfront, our fourth quarter earnings have been stable, and the working metrics behind them stay robust. Second-generation money leasing spreads have been optimistic for the thirty ninth straight quarter. That is nearly 10 uninterrupted years of lease progress. Leasing velocity remained per pre-COVID ranges and identical property year-over-year money NOI elevated. It was a really clear quarter. There have been no uncommon or non-recurring gadgets of be aware.
Subsequent to quarter finish, we entered right into a floating to mounted rate of interest swap on the remaining $200 million of our $400 million time period mortgage maturing in March of 25. The swap fixes so for a 4.67% by the preliminary maturity date. For the complete 12 months, we reported FFO of $2.62 per share. That is up from our authentic ’23 steering with a midpoint of $2.58 per share, regardless of a $0.01 per share destructive affect from the SVB chapter earlier within the 12 months. This outperformance versus our authentic forecast was primarily pushed on the properties.
Full 12 months identical property NOI was a stable 4.2% on a money foundation, which was our greatest efficiency since 2019. Digging somewhat deeper into our same-property efficiency throughout the fourth quarter, money NOI elevated 3.5% in comparison with final 12 months. Money revenues elevated 60 foundation factors, whereas bills decreased 4.6%. In step with final quarter, these numbers have been impacted by property taxes. Along with our common appeals of tax assessments, our portfolio additionally benefited throughout the second half of the 12 months from the well-publicized tax cuts that have been just lately permitted by Texas voters. Nearly all of our tax financial savings was in Austin, which is essentially a triple internet market and due to this fact, decrease property taxes lowered each revenues and bills throughout the quarter.
Earlier than shifting on, I additionally wished to level out the continued optimistic development in parking revenues we noticed throughout the fourth quarter. Total, complete parking revenues elevated one other 3% over the prior quarter and have been up 15% for all of ’24 in comparison with ’23. Turning to our growth efforts. The present growth pipeline is comprised of fifty% curiosity in Neuhoff in Nashville and 100% of Area 9 in Austin. Our share of the remaining estimated growth prices for these two initiatives is $70 million, which can be funded by a mixture of our Neuhoff development mortgage and our working money movement.
Taking a look at our steadiness sheet. Internet debt-to-EBITDA is an industry-leading 5.1x. We have now no important debt maturities till July of 25. Our liquidity place stays robust with solely $185 million excellent on our $1 billion credit score facility and our dividend stays properly lined, with an FAD payout ratio of 72% in 2023. As a fast reminder, our present frequent dividend is over 10% greater than it was pre-COVID. We’re in a really small variety of workplace REITs which have truly elevated their dividend since 2019.
I am going to shut by offering our preliminary 2024 steering. We presently anticipate full 12 months ’24 FFO between $2.57 a share and $2.67 a share with a midpoint of $2.62. Our steering may be very clear. There are not any important one-time non-recurring gadgets, together with uncommon time period charges. There are not any property acquisitions, property inclinations growth begins or capital market transactions. If any of those do happen, we’ll replace our earnings steering accordingly.
As Richard mentioned earlier, we’re in lively negotiations with WeWork whereas nothing is finalized, our steering is per the expectations Richard outlined. We have now conservatively assumed a February 1 efficient date for all of those potential outcomes. Our steering doesn’t embrace any funds of our unsecured declare within the SVB chapter case, which we presently estimate can be roughly $10 million. The precise quantity and timing of restoration in opposition to this declare shouldn’t be but identified, however unsecured SVB bonds are presently buying and selling round $0.55 to $0.60 on the greenback. So, we do anticipate there’ll finally be important worth on this declare.
There isn’t any affect on our ’24 steering from the potential Financial institution of America lease expiration at Fifth Third Heart that Richard mentioned earlier within the name. And whereas we’re not offering steering past ’24 at the moment, we anticipate the destructive affect of this possible expiration on ’25 and ’26 numbers can be greater than offset by the stabilization of a number of developments and redevelopments throughout that interval.
Backside line, our fourth quarter outcomes have been stable, pushed by robust identical property efficiency. Our greatest-in-class leverage and liquidity place stays intact, and our dividend stays properly lined. Our ’24 earnings steering is flat with 23 numbers as anticipated greater curiosity expense and WeWork losses are offset by forecasted enhance in NOI from our current properties in addition to our new developments and redevelopment deliveries.
With that, let me flip the decision again over to the operator.
Query-and-Reply Session
Operator
[Operator Instructions] Your first query comes from Jay Poskitt from Evercore ISI. Your line is now open.
Jay Poskitt
I used to be questioning if you happen to might simply be somewhat extra particular on the timing for getting again to that occupancy to 90%. I do know you sort of outlined it because the intermediate time period, however any extra coloration there could be nice.
Colin Connolly
Sure. As we do not present ahead earnings steering, we’re not going to offer ahead occupancy, particular ahead occupancy steering. However I believe Richard walked by the constructing blocks of sort of the ins and the outs there. And as I mentioned, we do really feel very comfy over a multiyear course of that may drive earnings again up over 90%.
Jay Poskitt
That is useful. After which simply on a extra broader view. I used to be questioning if you happen to might simply present any commentary in your markets, which of them you are most enthusiastic about and which of them you are extra cautious as we head into ’24?
Colin Connolly
Sure. It — once more, I might say broadly talking, the Solar Belt continues to carry out very properly, particularly our markets and I believe the place we have seen the strongest leasing exercise up to now has actually been right here in Atlanta, which advantages from a really diversified buyer base. And so we’ve a number of nice area right here, and we have had a number of success leasing it up.
And so a few different of our markets of be aware which were, I might say extremely lively has been the Tampa market continues to carry out very properly. It is most likely the bottom emptiness fee market inside our footprint in the present day. After which out in Phoenix, we have got a number of exercise Phoenix in the present day, and I might attribute a few of that to the general market, but additionally very particularly to I believe what’s a very thrilling repositioning venture we’re doing out at Hayden Ferry.
Operator
Your subsequent query comes from Blaine Heck from Wells Fargo. Your line is now open.
Blaine Heck
The commentary on quarter-to-date leasing exercise was useful, however simply occupied with your general leasing pipeline. Are you able to simply speak about how a lot of the exercise you guys are engaged in in the present day is pushed by tenants which have lease expirations and are both renewing or relocating on the identical sq. footage or downsizing versus tenants which are both including demand that is new to the market or increasing throughout the market and perhaps how these proportions could be trending?
Richard Hickson
Sure, that is Richard. Sure, I might say if we glance again to 2023 as a little bit of a proxy, we’re nonetheless displaying that of the shoppers we renew, they’re internet increasing fairly than contracting, however there is definitely a dynamic that is usually based mostly on {industry}, perhaps tech, somewhat bit of monetary companies the place there’s usually some discount in area on common when a buyer is renewing.
However we really feel like — once more, general, we’re in an optimistic place in stance when our pipeline and looking out on the product we’ve to lease and that we’re truly seeing as properly some fascinating inbound exercise or new to market exercise in sure markets.
I would not name it sturdy, full-blown main main headquarters leasing, although there’s somewhat little bit of that brewing, however we’re seeing some fascinating regional headquarters which are shifting into specific markets, whether or not they be Tampa and Phoenix, as Colin talked about, additionally right here in Atlanta for sure. However we really feel like they’re good, good optimistic issues taking place within the early-stage pipeline.
Blaine Heck
Very useful, Richard. After which simply my second query. You guys are sitting simply above 5x on a debt-to-EBITDA foundation proper round your sort of focused long-term leverage purpose. Are you able to simply speak about how a lot dry powder you suppose you could have for opportunistic investments? The place you would be comfy bringing that leverage as much as you for the fitting alternative? And simply how a lot funding capability that affords you? And in addition how you consider utilizing fairness or OP items in a deal to maintain leverage ranges down?
Colin Connolly
Sure, Blaine, it is — we have got important capability. And it — that leverage, low leverage profile, I believe oftentimes is painted with a sort of a defensive posture, and it’s defensive and positively been offered a number of help during the last a number of years. However we actually do take into consideration our steadiness sheet and that low leverage from an offensive perspective.
And in years previous, we have executed a few of our, I might say, most fascinating transactions in occasions of dislocation and have moved leverage up, I believe, prior to now as excessive as 5.5x and even within the excessive 5s, however then made it a precedence to carry that leverage again down as we might. So in the present day, if the fitting alternatives come alongside, we’ll actually benefit from these. However actually, our willingness to take action goes to be a operate of alternatives that have gotten product that match with our life-style workplace traits and can we do a transaction that may drive earnings and supply accretion.
And so we have a look at that in totality, and we have a look at that when it comes to what our sources of funding could be, whether or not that’s debt or fairness or property gross sales and take into consideration that holistically, but it surely’s targeted on investing in high-quality life-style workplace and doing it in such a means that may present accretion to our shareholders when stabilized.
Operator
Your subsequent query comes from Camille Bonnel from Financial institution of America. Your line is now open.
Camille Bonnel
Your portfolio has such a large wholesome unfold between leased and occupied area. Are you able to quantify how a lot of that is commencing in 2024? And from a timing perspective, are the commencements fairly even all year long or again half weighted?
Richard Hickson
Camille, it is Richard. So — of that $730,000 that I had in my ready remarks, about 650, somewhat over that 1,000 or in ’24, and that’s weighted sort of early 2Q.
Camille Bonnel
Recognize the main points. And the colour additionally on the decrease leasing spreads within the fourth quarter. As we glance ahead, are you able to present any particulars across the mark-to-market throughout leases rolling over the 12 months?
Colin Connolly
Camille, it is Colin. The — as Richard talked about, the combination this previous quarter impacted these leasing spreads. As we glance ahead over the course of the 12 months. And I assume I might slim our focus to the late-stage pipeline that we have got and the place we have got very particular visibility and our hope is that we’ll proceed to drive optimistic lease rollouts.
Camille Bonnel
Okay. And if I can sneak yet one more in. Simply extra broadly within the submarkets the place you are seeing optimistic internet absorption. Are you able to discuss to the kind of pricing energy landlords or your self have? Is there a chance for workplace rents in your market to proceed to develop even with the challenges for the {industry}?
Colin Connolly
Nicely, I believe in the present day, it’s nonetheless — I believe the market usually nonetheless favors the tenant. However I believe if you actually slim your focus down into life-style workplace properties in the present day, as I discussed, there are a number of market forces at play. We do see the general provide of workplace in america coming down in actual time and with none significant new development and demand starting to return, we will see that pendulum swing within the not-too-distant future for the very best quality product.
And so over — whereas in the present day, I believe rents are usually flat over the course of the subsequent 12, 24 months. I believe that, as I mentioned, I believe the market might shift and produce again pricing energy to homeowners of life-style workplace like Cousins.
Operator
Your subsequent query comes from Tony Paolone from JPMorgan. Your line is now open
Tony Paolone
Okay. First one, only for Richard, I simply need to make clear, be sure that I caught your feedback proper. So that you suppose occupancy on the finish of 2024 in your steering is best apples-to-apples than the place you ended ’23. Is that proper?
Richard Hickson
Usually in line.
Tony Paolone
Okay. All proper. After which, Colin, you talked about simply taking part in offense and you’ve got the steadiness sheet capability. Are you able to perhaps discuss to what you suppose offers that begin to emerge appear like economically when it comes to the place you suppose perhaps both cap charges or IRRs or whether or not you are going in as a debt funding, like what this would possibly appear like because it unfolds?
Colin Connolly
Sure. Tony, nice query. I — as I’ve talked about, we do suppose the — we’re seeing an rising quantity of fascinating alternatives that we predict are more and more turning into extra actionable. We have been — we have been very affected person during the last 12, 24 months, and I believe will finally be rewarded for that affected person as a result of I believe, finally, as we make investments the cap charges can be greater and the IRRs can be greater than they have been 24 months in the past.
I believe finally, how these pencil out, as I mentioned, it is much less of a operate of a selected cap fee as it’s holistically as we have a look at, once more, investing in life-style workplace properties and funding it with essentially the most environment friendly supply of capital that is finally going to drive accretion of stabilization for our shareholders. So these metrics, it is arduous to specify a selected cap fee that is not likely finally what’s driving — will drive our funding.
Tony Paolone
Okay. And if I might simply sneak yet one more in. Simply on Neuhoff. I believe prior to now, you talked about that being product that after accomplished, can perhaps drive a bit extra visitors as a result of it is simply the character of it, how distinctive it’s. Simply questioning if you happen to can touch upon what that appears like now and simply if something shifted both on the demand aspect in that market or simply if there’s any aggressive provide that is getting in the way in which?
Colin Connolly
No. It’s the most unusual property actually in Nashville, the adaptive reuse element of it after which the combination of makes use of with the workplace, the multifamily and what can be actually some compelling retail and meals corridor proper alongside the banks of the Cumberland River.
So we predict that, that may proceed to drive robust demand, and we’re seeing that demand broad-based throughout all {industry} sorts, from skilled companies, advertising and promoting to authorized, monetary companies.
We have seen very broad-based curiosity. And our — I might say, actually, our purpose is to drive 25,000 to 50,000 sq. toes of leasing 1 / 4 and finally have a very enticing multi-tenant diversified lease roll at Neuhoff to enrich the flats and retail.
Operator
Subsequent query comes from John Kim from BMO Capital Markets. Your line is now open.
John Kim
Colin, in your opening remarks, discussing older commodity belongings being repurposed. What are you seeing in your markets so far as what they’re being repurposed into? Is it one other kind of workplace like medical or life-style? Or is it different asset sorts? And is there any alternatives for Cousins to take part on this?
Colin Connolly
Sure. John, we’re beginning to see that actively play out. And it is — gosh, it is most likely each week, you see a media headline a few constructing that’s being both flip down or repurpose. We might cite some very particular examples throughout our markets. I might say if I needed to characterize it in the present day, you are seeing — you are seeing extra suburban workplace, commodity workplace product, be bought at a really low foundation and that product finally being torn down to get replaced with multifamily residential and mixed-use kind properties. And I might say the bigger, older towers.
In some instances, the price to carry these buildings down is prohibitively costly. And so there, you are seeing a few of these belongings commerce at very low foundation the place builders are changing that into both multifamily, some hospitality and mixture of each of these, I believe from our perspective, we’ve checked out some. We’ll proceed to have a look at a few of these and research. However once more, I believe our focus extra broadly talking, goes to be an asset that we really feel have quite a lot of conviction that both already are or could be transformed into life-style workplace.
John Kim
Okay. That is useful. My second query is only a clarification on Area 4. Is your plan to position this asset into redevelopment as soon as accruent leaves? Or are you trying to execute short-term leases? I believe that was talked about as an choice and maintain it as is till you type growth plans?
Colin Connolly
Sure. I believe we’re at a degree the place we’re not able to make that call. As Richard talked about, that accruent lease does expire later this 12 months. There may be one different buyer within the constructing that is bought an exploration, a 12 months or so later. And so our intention is to positively not signal any long-term leases within the brief time period. If we will discover clients who need area for a really brief particular interval, we’re completely open to that and if we will drive some NOI that means, we’ll take into account it. However I believe we’ll sort of proceed to attend and see and decide on particularly what we do with that asset at a later date.
Operator
Your subsequent query comes from Upal Rana from KeyBanc Capital Markets. Your line is now open.
Upal Rana
Simply on the three leases with WeWork, that you simply anticipate to cut back or cancel. What are your plans related to that going ahead? Sure, I might be curious on any coloration there.
Colin Connolly
What are our plans on the three WeWork leases?
Upal Rana
Sure, with those which are going to be lowered and probably canceled?
Colin Connolly
Nicely, once more, I believe with WeWork, once more, there’s three of the leases that — properly, one in Charlotte that we do not consider can be modified. It is a very robust performer for them. Two, we’re going to modify and people will shrink in area and have you ever lowered lease. And our hope and our view is these are in — these two shops are in actually robust buildings that we personal in the present day.
Our clients view them as a pleasant amenity to have within the constructing. And our hope is on the opposite aspect of the chapter that WeWork emerges as a a lot stronger firm with little to no debt and can be a terrific associate for us in these buildings. Within the case of 725, Richard talked about this earlier, from our perspective, there was simply an excessive amount of demand from conventional workplace customers that have been involved in that area to maneuver ahead with economics, restructured economics. So we have chosen to cross.
Upal Rana
Okay. Received it. That was useful. After which simply on Neuhoff coming on-line in June, the place are rents and concessions there in the present day? And the place is the present growth yield relative to if you initially began development?
Colin Connolly
Sure. The — Neuhoff continues to carry out very properly. As we have a look at the web impact of rents with out being particular, I might say that the TIs are greater than we initially anticipated, however so are the rents. And so the web impact of rents have been successfully flat up to now. We’ll as we transfer ahead to finalize the venture, we’ll sort of proceed to watch that and if we’ve to offer extra TIs to stabilize that in a quicker time line, that is actually one thing that we’ll take into account.
However up to now, the web efficient rents have been successfully flat. The general growth yield, I might say we actually have had a — could be decrease than we began the venture, and I might attribute it solely to greater price of our curiosity expense. That is a floating fee mortgage. And clearly, that SOFR has moved. And so the curiosity expense on that venture has been greater than we initially anticipated.
Upal Rana
Okay. Nice. And if I can squeeze yet one more in. Richard, you talked about Austin has been doing — had some seeing some first rate momentum right here. Are you able to elaborate extra on that? What is going on on within the floor there? And what’s actually driving a few of that momentum?
Richard Hickson
Nicely, I assume to make clear that I believe I might name Austin nonetheless much less lively than our different markets at this level. We’re seeing optimistic dynamics as in, I might say, the sublease listings have stabilized, and that is been a giant dynamic in Austin for a short time now. In order that, to me, is a pleasant main indicator of issues beginning to probably stabilize in flip, however it’s nonetheless extra quiet, as an example, than our different markets.
Operator
Your subsequent query comes from Dylan Burzinski from Inexperienced Avenue. Your line is now open.
Dylan Burzinski
Most of my questions have been requested, however I assume simply going again to type of as you guys are acquisition alternatives, are there sure markets throughout your footprint which are presently extra enticing than others? Whether or not it’d be due to only a higher outlook for provide and demand? Or whether or not it as a result of pricing has type of degraded somewhat bit extra?
Colin Connolly
Dylan, it — I might say we’ll actually would pursue alternatives in any of our markets. We have nice confidence in all of them. They’re maybe summer time in the present day have extra power than others. Most of that basically pushed by provide and the time it’ll take to soak up among the new provide in sure markets. However I might say, usually talking, as an organization over time, we want to see our funding develop in among the cities past — or to a better proportion past Atlanta and Austin.
And so, we actually have a number of curiosity in markets like Charlotte and Nashville and Dallas and Tampa as a result of we would like to reinforce that geographic diversification over time. However that does not imply that is a very compelling alternative emerges in Atlanta or Austin, the place we have got nice experience and nice platforms. We’ll completely pursue these. However I might say over an extended time period, I want to see the geographic diversification enhanced only a bit.
Operator
Your subsequent query comes from Peter Abramowitz from Jefferies. Your line is now open.
Peter Abramowitz
Sure. One of many themes that is been rising this quarter is both lenders or companions which are fairly prepared to tackle unfavorable phrases simply to get out of workplace and trim their publicity there. So simply curious, if you happen to’ve seen any indicators of that in your markets, and what is the position of misery general within the transaction market proper now?
Colin Connolly
Peter, I recognize the query. It’s — the reply is sure, we’re starting to see that. I might say there is a couple totally different tendencies which are all sort of coming collectively, which is you might be seeing lenders or — and a number of traders in actual property, attempting to diversify out of their workplace publicity. And on the identical time, you are beginning to see catalysts for issues to occur in that you have a big quantity of debt maturities which are beginning to happen in 2024.
And also you even have elevated leasing exercise, which requires capital to pay tenant enhancements and leasing commissions. And in order that forces a dialog as who’s going to fund that. And in order that’s all components to create transaction and funding alternatives. And as I discussed, that is why we have got some confidence that over the course of this 12 months, we will start to see far more actionable funding alternatives for Cousins.
Operator
There are not any additional questions at the moment. Mr. Connolly, please proceed along with your closing remarks.
Colin Connolly
Thanks all for becoming a member of us in the present day and your continued curiosity in Cousins Properties. We look ahead to hopefully seeing you quickly, however please be happy to achieve out to our staff with any questions within the interim. Have a terrific day.
Operator
Girls and gents, this concludes in the present day’s convention name. Thanks for collaborating. Chances are you’ll now disconnect.
