Executive Summary / Key Takeaways

• Cousins Properties is capitalizing on the bifurcation of the office market, focusing on high-quality, "lifestyle" assets in growing Sun Belt cities where demand is accelerating and new supply is constrained, positioning the company for future occupancy and rent growth.
• The company demonstrated strong operational performance in Q1 2025, achieving its 44th consecutive quarter of positive cash rent roll-up (3.2% overall, 7.9% excluding one specific renewal) and increasing portfolio occupancy to 90%, contributing to a 4.0% Same Property NOI increase.
• A best-in-class balance sheet, characterized by industry-low leverage (4.9x Net Debt to EBITDA) and significant liquidity ($961.3 million available on Credit Facility), provides a critical cost of capital advantage over peers and enables opportunistic investments in a dislocated market.
• Management raised the midpoint of its 2025 FFO guidance to $2.79 per share, representing 3.7% growth over 2024, driven by operational improvements like higher parking income and lower real estate taxes, signaling confidence in continued earnings momentum despite anticipated temporary occupancy dips from known move-outs.
• While lacking specific, quantifiable technological moats, the company's focus on modern, amenity-rich "lifestyle" properties and efficient operations (implied by lower operating costs relative to some peers) serves as a form of competitive differentiation, particularly appealing to tenants prioritizing employee experience and efficiency.

Sun Belt Foundation and a Market in Transition

Cousins Properties, a Georgia-based REIT founded in 1958, has built its identity around the ownership, development, and management of premier Class A office properties and opportunistic mixed-use projects across the dynamic Sun Belt region of the United States. With a strategic focus on high-growth markets including Austin, Atlanta, Charlotte, Tampa, Phoenix, Dallas, and Nashville, Cousins has positioned itself to benefit from favorable demographic and economic trends. The company's history is marked by a disciplined approach to capital allocation, involving strategic acquisitions, selective developments, and timely dispositions, notably recycling over $1 billion of older, capital-intensive assets between 2020 and 2022 to cultivate a younger, more efficient portfolio. This strategy is underpinned by a commitment to maintaining a simple, flexible, and low-leveraged balance sheet, enabling the pursuit of growth opportunities at advantageous points in the cycle.

The broader office market is currently undergoing a significant transformation, characterized by an accelerating bifurcation. Commodity and older vintage properties face declining demand and capital access, leading to value resets, repurposing, or demolition. In stark contrast, the "lifestyle" office sector, where Cousins primarily operates, is showing signs of improving fundamentals. New construction is at historic lows, while leasing demand is accelerating. JLL (JLL) reports that 10 million square feet have been removed from the U.S. office inventory since 2024, with predictions of an additional 40 million square feet declining by the end of the decade. This supply contraction, coupled with increasing demand driven by a transition towards a "return to normal" in office attendance, is leading to a rebalancing of the market. Management believes vacancy has peaked in the lifestyle sector, and market tightening is not far off, already evident in some submarkets.

While the company appears to lack specific, proprietary technological differentiators in the vein of advanced materials science or unique software platforms, Cousins' competitive positioning is significantly influenced by the quality and features of its "lifestyle" assets. These properties are designed with modern amenities and tenant experiences in mind, which serves as a key draw for companies prioritizing employee well-being and collaboration spaces. This focus on high-quality physical spaces, coupled with efficient operational execution – implied by lower operating costs per square foot relative to some peers like Boston Properties (BXP) – forms a crucial part of the company's differentiation. While competitors like Boston Properties and Kilroy Realty (KRC) may invest more heavily in specific property technology or sustainability features, Cousins' strength lies in delivering a desirable physical product and operational efficiency within its target high-growth markets. The company's strategic emphasis on acquiring and developing newer, more efficient buildings inherently incorporates contemporary building standards and amenities, contributing to lower ongoing capital expenditure requirements compared to older stock.

Operational Strength and Portfolio Momentum

Cousins' operational performance in the first quarter of 2025 underscored the benefits of its focused strategy and the improving market dynamics for quality assets. The company leased a robust 539,000 square feet of office space, marking its highest first-quarter volume since 2019. This activity contributed to a 3.2% cash rent roll-up on second-generation leases, extending the company's remarkable streak to 44 consecutive quarters of positive cash rent growth. Excluding a specific renewal at North Park in Atlanta, which typically sees rent roll-downs, the cash rent roll-up was a more indicative 7.9%.

Portfolio occupancy increased to 90% at the end of Q1 2025, up from 88.4% a year prior. While anticipated move-outs, including a significant expiration by Bank of America (BAC) in Charlotte in July 2025, are expected to cause a temporary dip in occupancy through the third quarter, management is optimistic about building back towards year-end and beyond. This confidence is supported by a healthy leasing pipeline and a significantly derisked expiration profile, with only 9.3% of annual contractual rent expiring through 2026, down 280 basis points from the previous quarter, and only two expirations exceeding 100,000 square feet remaining through the end of 2026.

Same Property Net Operating Income (NOI) for consolidated and unconsolidated properties saw a 4.0% increase in Q1 2025 compared to the prior year period. This growth was primarily driven by increased economic occupancy and cash rent commencement at properties like Promenade Tower and Buckhead Plaza in Atlanta, and Tempe Gateway in Phoenix, along with higher parking revenues, which management views as a positive indicator of increasing physical utilization. Non-Same Property NOI saw a significant increase, largely attributable to the acquisitions of Vantage South End in Charlotte and Sail Tower in Austin in December 2024.

Segment performance highlights included Austin's NOI increasing 30.7%, primarily due to the Sail Tower acquisition, and Charlotte's NOI increasing 62.4%, driven by the Vantage South End acquisition. Atlanta's NOI grew 5.3%, benefiting from increased occupancy and rent commencement. The Neuhoff mixed-use development in Nashville continues to gain momentum, with the commercial portion reaching 50% leased following a new lease with Fifth Third Bank (FITB) and multifamily leasing accelerating to 70% leased, prompting an acceleration of the projected multifamily stabilization timeline to Q1 2026.

Financial Strength and Strategic Capital Allocation

Cousins' financial position remains a core competitive advantage. For the three months ended March 31, 2025, the company reported total revenues of $250.3 million and net income available to common stockholders of $20.9 million, translating to FFO of $0.74 per share. Revenue growth was supported by higher rental property revenues (driven by occupancy and acquisitions), increased termination fee income (including proactively initiated move-outs), and higher other income, which benefited from the sale of the SVB bankruptcy claim for $4.6 million and interest income from real estate debt investments. Expenses saw increases in operating costs, general and administrative expenses (due to higher stock compensation), interest expense (due to recent debt issuances), and depreciation and amortization (due to acquisitions and completed developments).

The balance sheet is characterized by industry-leading low leverage. Net Debt to EBITDA stood at 4.9x at the end of Q1 2025. The company maintains robust liquidity, with $961.3 million available on its $1.0 billion Credit Facility as of March 31, 2025, which matures in April 2027. The company's investment-grade credit ratings, received in April 2024, have reduced borrowing costs on its Credit Facility and Term Loans. The debt profile is well-laddered, with $1.90 billion in unsecured senior notes and $446.2 million in secured mortgage notes outstanding, 87% of which bears fixed interest rates. The company is in compliance with all debt covenants.

Capital allocation is disciplined and opportunistic. Cash flows from operations, supplemented by potential asset sales, joint venture distributions, and access to debt and equity markets, fund ongoing capital requirements and new investments. Capital expenditures in Q1 2025 totaled $54.3 million, primarily directed towards leasing costs and building improvements, showing a decrease from the prior year as development projects like Domain 9 completed and redevelopment activities like Briarlake Plaza substantially finished. The company continues to utilize its ATM program and Forward Sales contracts to raise equity on a leverage-neutral basis when compelling investment opportunities are identified.

Cousins funds its common dividend, which totaled $54.6 million in Q1 2025, primarily from operating cash flow, with a policy to target a payout ratio of 70% to 75% of Funds Available for Distribution (FAD).

Outlook, Opportunities, and Risks

Management expressed confidence in the company's trajectory, raising the midpoint of its 2025 FFO guidance to $2.79 per share, representing a 3.7% growth rate over 2024. This positive outlook is primarily attributed to expected increases in parking income and lower real estate taxes, particularly in the Atlanta and Austin markets. The guidance assumes the refinancing of a $250 million senior note maturing in July 2025 and no SOFR cuts in 2025. Importantly, the guidance excludes any speculative property acquisitions, dispositions, or development starts, suggesting potential upside if the company executes on its pipeline of opportunities.

The current market dislocation, where private market valuations and capital access remain challenging for many, presents a compelling opportunity for Cousins. With its strong balance sheet and cost of capital advantage (unsecured bonds trade at the tightest spread to treasuries among traditional office REITs), the company is uniquely positioned to pursue accretive investments. Management is actively evaluating a wide variety of opportunities, including debt, structured transactions, joint ventures, and property acquisitions, focusing on high-quality Sun Belt lifestyle assets. While development starts are considered unlikely in 2025 due to construction costs and capital availability, conversations are beginning for potential projects further out, particularly in high-demand submarkets like The Domain in Austin.

Despite the optimistic outlook, risks persist. Changes in general economic conditions, including inflation and interest rates, could impact tenant demand and financing costs. The real estate industry faces risks related to leasing velocity, tenant financial health, and competition. Changes in customer preferences regarding space utilization remain a factor, although the flight to quality trend benefits Cousins' portfolio. Competition from other developers, investors, and operators, including large private equity firms increasingly showing interest in the high-quality segment, could intensify. However, Cousins believes its local market expertise, operational platform, and capital structure provide a competitive edge.

Conclusion

Cousins Properties is executing a clear and effective strategy centered on owning and operating high-quality, lifestyle office assets in the most dynamic Sun Belt markets. The company's recent performance, marked by strong leasing momentum, consistent rent growth, and improving occupancy, demonstrates the resilience and desirability of its portfolio in a bifurcated market. Supported by an industry-leading balance sheet and a distinct cost of capital advantage, Cousins is well-positioned to capitalize on opportunistic investments arising from the current market environment. While facing near-term occupancy headwinds from known move-outs, the company's derisked expiration schedule and robust leasing pipeline point towards future recovery and growth. The raised 2025 FFO guidance reflects management's confidence in the underlying operational strength and the favorable trajectory of its target markets. For investors, Cousins represents an opportunity to invest in a high-quality office portfolio with significant operational upside and strategic flexibility, poised to benefit from the ongoing rebalancing of the office sector and the continued growth of the Sun Belt.