Cousins Properties Incorporated (CUZ) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Cousins Properties Second Quarter Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, July 31, 2026. I would now like to turn the conference over to Pamela Roper, General Counsel.

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

Thank you, Pam, and good morning, everyone. We had an excellent second quarter at Cousins. On the earnings front, the team delivered $0.75 a share in FFO. In addition, we increased the midpoint of our FFO guidance by $0.01 per share to $2.95 per share for the full year in 2026, which represents 3.9% growth over 2025. It will be our third consecutive year of FFO growth and represents a 4% compounded annual growth rate since 2023. Cousins earnings growth during this 3-year time frame is unmatched among traditional office REITs. Leasing remained robust. For the second consecutive quarter, we delivered one of our highest leasing volumes in the history of the company. We completed 924,000 square feet of leases, bringing occupancy to 98.8% leased, the highest level since the first quarter of 2020. Our cash rent roll-up on second-generation leasing was 9.2%, which marks 49 consecutive quarters of positive rent roll-ups. These results underscore the strength of our portfolio and the depth of customer demand for high-quality lifestyle office space. Let me highlight several important trends that continue to shape the office landscape. First, demand is improving. According to JLL, leasing activity hit a post-pandemic high during the second quarter. In addition, net absorption has been positive for 4 straight quarters and as a result, again, according to JLL, available space is declining at one of the fastest paces in office market history. Second, to date, AI is proving to be more of a friend than a foe to the office sector. Employment data has shown no material negative trends due to AI. And on the ground, we are seeing AI-related office demand broaden across the country into all of our markets. As an example, according to [ BTS ], there is approximately 1.2 million square feet of AI, office demand in Austin. Third, the flight to quality is unrelenting. Customers are prioritizing high-quality and well-located buildings to promote engagement and collaboration. Again, according to JLL, nearly all of the positive net absorption in the office sector since the onset of COVID has occurred in buildings that were delivered from 2010 to the present. Fourth, the Sun Belt migration continues to reaccelerate. In addition to full corporate relocations, we see an uptick in companies from high cost, less business-friendly cities in the Northeast and West Coast open new Sun Belt corporate hubs. We believe that we are still in the early innings of this migration trend and expect these announcements to continue. Lastly, new construction starts are at historic lows. Given the 3- to 4-year lead time to deliver a new project, supply is unlikely to grow until 2030 at the earliest. What are the implications of these trends? Simply stated, the office market has bifurcated. The commodity office sector has minimal demand and is significantly oversupplied or said differently under demolished. At the same time, the lifestyle office sector is increasingly undersupplied. The net result for Cousins is an emerging shortage of premier lifestyle office space in the best submarkets of the Sun Belt a shortage that will become increasingly acute over the next several years and favor landlords. Dozens is uniquely positioned to benefit from these trends. Turning to our strategy. As we outlined on prior earnings calls, our focus remains unchanged. We are sharply focused on driving sustainable earnings growth while maintaining our best-in-class balance sheet, and continuing to enhance the quality of our Sun Belt lifestyle office portfolio. During the second quarter, we advanced this strategy. First, we increased occupancy by 50 basis points to 89.4% across the portfolio as a result of the robust leasing activity. Second, we closed on a series of new investments and dispositions which upgraded the quality of our portfolio and enhanced our geographic diversification. Third, we closed on a new 5-year $1.2 billion unsecured credit facility and improved the borrowing spread by 15 basis points. Looking ahead, our team's ability to drive both internal and external growth will be key to increasing FFO. We are in a great position to do both. Looking at internal growth opportunities, we remain confident that the portfolio will reach 90% occupancy at year-end. We have modest near-term lease expirations and a robust late-stage leasing pipeline that will support this effort. Shifting to external growth opportunities. The strength of our balance sheet provides us flexibility to selectively pursue compelling new investments, including both acquisitions and new developments. As I said previously, the lack of large blocks of available space in many of our markets is likely to be the catalyst for new development opportunities. While nothing is done yet, we are hopeful to have news to share in coming quarters. We are excited about what lies ahead for Cousins. The office market is rebalancing. New construction is virtually nonexistent and high-quality lifestyle office space is becoming increasingly scarce. The office fundamentals in the Sun Belt are without a doubt tightening, and we expect the positive momentum to continue. Despite ongoing macro volatility, Cousins continues to outperform supported by a strong operating platform, a highly efficient G&A structure and one of the strongest balance sheets in the office REIT sector. Before turning the call over to Richard, I want to thank our talented Cousins employees. Their commitment to excellence into serving our customers and each other is the foundation of our success. Richard?

Thanks, Colin. Good morning, everyone. Our operations team delivered another exceptional performance in the second quarter. Our 924,000 square feet of quarterly leasing activity matched our strong first quarter resulting in 1.9 million square feet of total volume for the first half of the year. For context, if you look to the past decade, our average annual leasing volume was roughly equal to what we have posted in the first 6 months of this year. Our second quarter square footage volume was also the second highest quarterly level since mid-2019, with the technology and legal sectors each accounting for about 30% of our activity. On a square foot basis, 43% of our completed leases this quarter were new and expansion leases, totaling 395,000 square feet, well above our 3-year run rate. The team also completed 19 renewals during the second quarter with a renewal square foot volume at its highest level in well over a decade. This included five renewals greater than 50,000 square feet spanning four different markets. Importantly, all five of those renewals either retained or expanded their footprint. Beyond our fantastic completed activity, our overall leasing pipeline remains strong and at a level consistent with last quarter. As far as our late-stage pipeline is concerned, in our June investor presentation, we shared that 1 million square feet of activity was either signed second quarter to date or in lease negotiations. As of today, 1 month into the third quarter, we have approximately 820,000 square feet of leases signed or in lease negotiations. Given the strength of our early-stage pipeline, we are confident that number should again surpass the 1 million square foot mark soon. Turning to lease economics. Quarterly average net rent came in at $41.35, average leasing concessions were $10.17 and average net effective rent was $285. And second quarter and first half of 2026, average net effective rent both grew nicely relative to the full year 2025 and half and 16.8%, respectively. Finally, second-generation cash rents increased again this quarter by 9.2%, with the increases broad-based across nearly all of our markets. For the quarter, our total office portfolio end-of-period lease and weighted average occupancy percentages were 92.8% and 89.4%, respectively. Both went up meaningfully sequentially as well as for the third consecutive quarter. Our portfolio lease percentage increased in all but two markets, with Atlanta as the largest positive contributor by a wide margin. The largest market contributors to organic growth in our weighted average occupancy for Atlanta and Charlotte. I would also note that the current 3.4% spread between our leased and occupied percentages is at its widest in over 3 years. As Colin mentioned, our year-end occupancy outlook is unchanged. And I want to remind everyone that we have a couple of large expirations in Charlotte that could result in a modest downtick in occupancy next quarter. However, with low lease expirations, and a large backlog of new and expansion leases set to commence in the second half and weighted toward the fourth quarter, we remain comfortable with our 90% year-end occupancy goal. Turning to the markets. CBRE notes that this quarter, the Atlanta office market recorded its strongest quarterly activity in 4 years and that for the first time in 15 years, no new office projects, over 100,000 square feet are underway, which is truly remarkable. We continue to see outsized demand in our portfolio where we signed 404,000 square feet of leases this quarter. And 51% were new and expansion leases. With this quarter's outstanding activity, I'm pleased to say that Atlanta now stands at 91.6% leased with a lease-to-occupied spread of 5.9%. Our new activity included a 46,000 square foot lease with a technology company at 725 [ pots ] in Midtown as well as three leases totaling 77,000 square feet at Terminus and Buckhead, the team also rolled up cash rents by 14.3% this quarter. Charlotte saw market fundamentals continued to improve during the quarter and vacancy reached its lowest level since the third quarter of 2023 per JLL. Our 550 South redevelopment has delivered and is receiving great market feedback. Occupancy of the property increased nearly 10% this quarter with the commencement of [ Scout Motors ] and we are in lease negotiations with three new customers totaling 24,000 square feet. The redevelopment of 201 North [ Tryon ] is progressing well, and we still expect substantial completion during the first quarter of 2027. Like we stated last quarter, we are taking a patient approach to leasing at this property as the redevelopment progresses. Even still, we are encouraged by our early stage leasing pipeline. In fact, our overall West pipeline in Charlotte is nearly 3x what it was this time last quarter. In Austin, JLL notes that the office market recorded over 200,000 square feet of net absorption in the first half of 2026. We marking the first positive first half reading since 2022. Despite being nearly 96% leased to start the quarter, the Austin team still signed 74,000 square feet of new and expansion leases and 42,000 square feet of that was with technology companies. Team also rolled up cash rents by 16.3%. Finally, subsequent to quarter end, we also completed a 76,000 square foot renewal with a Fortune 10 technology company at Domain 7, which was previously a 2027 expiration. In Tampa, JLL notes that Trophy buildings had a vacancy rate of only 8.9% in the second quarter with a direct asking full-service rents in the low 50s per square foot, more than double the average for Class B assets. Our portfolio is also now seeing full-service rents strike north of $50 per square foot. For the quarter, we signed 168,000 square feet of leases, including an 89,000 square foot renewal with a law firm at corporate center and a 23,000 square foot renewal with Deloitte at the point. [ Cushman & Wakefield ] reports the Phoenix office vacancy rate fell this quarter by the fastest pace in over a decade. Further, CBRE recently placed Phoenix fourth nationally for net corporate headquarters relocations. Our portfolio has certainly been a beneficiary of that activity over the past few quarters, and we do not see it stopping. This quarter, our team signed 139,000 square feet of leases, including a 109,000 square foot renewal with the same Fortune 10 technology company that we just renewed in Austin. The team also completed two smaller new leases with companies in the AI space. In Dallas, JLL notes that the quarter saw positive absorption, restrained new construction and continued large corporate in migrations. In our portfolio, we signed 57,000 square feet of renewals, including a 52,000 square foot renewal with U.S. Renal Care legacy Union 1 in Plano. Recall that we took over management of legacy Union 1 from Ovintiv in the first quarter. Ovintiv has now since expired at second quarter end, enabling us to go direct with all of their subtenants, now collectively occupying 282,000 square feet of space in the building. Of that square footage, roughly 80% is set to expire in May of 2027. With that said, I'm pleased to announce that we are in lease negotiations with three customers totaling 214,000 square feet. This includes two renewals and one large new lease. Upon execution of these leases, we would be 91% leased on what will ultimately be about a 300,000 square foot building. Note the new lease does not commence until early 2028. And so we expect to have downtime on that space and possibly the remaining pending vacancy, which totals 187,000 square feet starting in June 2027 through commencements. Last but not least, our leasing volume this quarter included 49,000 square feet of activity at Neuhoff and Nashville. Kennedy will share more details about Neuhoff in her remarks. As always, thank you for our -- to our entire team for the work you put in to make the start of this year incredibly positive. We appreciate everything you do. I'll now turn it over to Kennedy.

Thanks, Richard. I'll start by giving a little more detail on Neuhoff, our recently delivered mixed-use projects in Nashville. As Richard mentioned, we have now signed the 2 floor lease that I referenced on last quarter's call, which is an expansion with Oracle, bringing the tech firms footprint to 161,000 square feet. This lease, combined with the new spec suite lease, brings the office component of the project to 96% leased, all with occupancy that will commence by the end of the year. The multifamily component continues to perform well, having reached over 94% leased and 90% occupancy in recent weeks. As a reminder, we have a future development phase that can accommodate over 300,000 square feet of additional office space. With the initial phase of Neuhoff stabilized, we are focused on securing some pre-leasing for the next building and encouraged by early discussions. On the investment side, we had another productive quarter, advancing our core goal of enhancing both our portfolio composition and earnings while maintaining our balance sheet. With each month, the office investment market appears to be functioning better as sales volumes increase and more debt options become available. We have used this opportunity to selectively dispose of a few noncore assets. In June, we sold Research Park Plaza 5 in Austin for a gross price of $42 million or $243 per square foot. Research Park was a stand-alone building for us in Northwest Austin with what we view as a lower growth profile, and we felt our capital and focus with invested elsewhere. We have also now closed on the previously announced sale of 111 Congress, a CBD Austin building built in the late 1980s. We sold the 519,000 square foot tower for a gross price of $208 million or $400 per square foot. Both of these marketed assets received good buyer interest and traded around a 9% combined cap rate. As a reminder, these were noncore assets with limited remaining lease term. And in the case of 111 Congress, ongoing capital needs, which was reflected in the prices. This profile is not reflective of our overall portfolio, which is why we chose to sell. We are always evaluating our portfolio and weighing dispositions relative to new opportunities and the impact to earnings. As we have discussed in the past, there are very few assets remaining within our portfolio that we consider noncore. So we will only pursue sales if we have identified a better use of proceeds. On the acquisition side, we bought out our partner's 10% interest in 100 mils or $18.5 million which was based on a value of $158.7 million or $552 per square foot. 100 mils is a trophy office building in the heart of [ Tempe ] that we delivered in 2022, today, it is over 98% leased. The buyout was always part of our business plan, giving us 100% ownership of our Premier [ Tempe ] portfolio. As Richard commented, we're enthusiastic about how quickly the vacancy has dropped in the submarket and believe that this asset offers a great long-term growth profile given the ongoing rent growth that we are experiencing. We also entered into a new joint venture in Austin, on a development project called Fifth & Walsh, which broke ground this month. Fifth & Walsh is in the dynamic and highly desirable Clarksville neighborhood just on the western edge of Downtown, 1 mile from Saletower. Parkfield benefits from high barriers to entry and great access to affluent residential neighborhoods. It is known for its vibrancy with a wide array of walkable amenities authentic to the city. The boutique, 199,000 square foot building will feature 20,000 square feet of ground level retail and 4 stories of trophy quality office space, which is already 58% leased. Our investment in the project is in a preferred equity position of up to $31.5 million. We anticipate funding this mostly over the second half of 2027 and a fun funding will receive a 10% preferred return. As part of the agreement, we have a right of first offer to purchase the building post completion. We believe that this is a great way to generate near-term earnings, coupled with a future acquisition opportunity with an underlying building that fits squarely into our strategy. The net result of these transactions is a newer, higher quality, more geographically balanced portfolio. Colin mentioned, we continue to evaluate other development opportunities and have the ability to be flexible in terms of structure. Given the emerging scarcity of available lifestyle office space, we maintain our belief that there will be select office development projects that offer an appropriate and compelling return premium. This could come both in the form of a JV with a developer or developments that we execute ourselves, utilizing our strong land base. We also intend to remain acquisitive. We are laser-focused on quality and executing acquisitions in a manner that is accretive to earnings. We believe that we have a continued competitive advantage, given the limited pool of investors that can transact on large office assets, our best-in-class balance sheet and market intelligence. In short, we are optimistic about the second half of the year. With that, I'll turn the call over to Gregg.

Thanks, Kennedy. I'll begin my remarks by providing a brief overview of our results, spending a moment on our property performance. Then moving on to our property transactions and capital markets activity before closing my remarks by updating our 2026 earnings guidance. Overall, as Colin stated upfront, our second quarter results were outstanding. Second-generation cash leasing spreads were positive, same property year-over-year cash NOI increased and leasing volume was exceptionally strong. Focusing on same-property performance for a moment, cash NOI grew 5.9% during the second quarter compared to last year. This follows a 5.5% increase during the first quarter. These numbers are a clear reflection of the increasingly healthy office fundamentals in our Sun Belt markets. As Kennedy discussed earlier, we closed several property level transactions since our last earnings call. And although she outlined the rationale and the economics for these deals, I thought it might be helpful to provide a little clarity on the accounting treatment for each. First transaction, the purchase of our joint venture partner's 10% interest in 100 Mill, was recorded as an equity transaction under GAAP and therefore, did not result in any gain or loss running through our income statement. Second transaction, our sale of Research Park 5, generated a gain of $9.2 million, which ran through net income, but not FFO or FAD. The third, our preferred equity investment in [ Fifth & Walsh ] will be classified as an investment in real estate debt. And the cash flow will run through our income statement as interest income. And finally, we moved 111 Congress to held for sale on our balance sheet during the second quarter. As you may recall, we marked this asset to market last quarter, and therefore, the sale did not generate a significant gain or loss upon closing earlier this week. Moving to our capital markets activity. It was a very busy and productive quarter. We closed on a recast of our unsecured credit facility, extending the term by 5 years and increasing the size to $1.2 billion. We also added extension options on two term loans totaling $500 million. With that, I'll close our prepared remarks by updating our 2026 earnings guidance. We currently anticipate full year '26 FFO between $2.92 and $2.98 per share with a midpoint of $2.95. This is up from a prior midpoint of $2.94 per share represents an increase of 3.9% over the prior year. The increase in FFO guidance is primarily driven by leasing activity that exceeded our prior forecast, as well as the impact of the property level transactions that have recently taken place. Our updated guidance also assumes the 2.9 million shares we previously issued on a forward basis are settled during the third quarter, a quarter later than our prior guidance. We continue to monitor the office sales market as Kennedy discussed earlier and explore additional noncore property sales. If we do move forward with additional sales, we may again delay the share settlement. However, for modeling purposes, we assume the settlement of all outstanding forward shares during the third quarter, and that's what's in our guidance. Beyond the transactions completed to date, the only remaining property transaction currently included in our updated guidance is the sale of our 303 Tremont land parcel during the fourth quarter. If we do ultimately complete any other sales purchases or development starts during '26, we'll update our guidance accordingly. With that, let me turn the call back over to the operator for your questions.

[Operator Instructions] First, we will hear from Anthony Paolone at JPMorgan Chase.

My first question relates to rent spreads. I think back in June at the NAREIT conference. You talked about how there has been so much leasing for top space that you were starting to see some real step functions up in rent. And I think your spreads in the quarter were good, but they've been at about that 10% level on average for a while now. So I was wondering if you can talk to whether we should expect to see some movement in that? Or maybe just add a bit more color on what's been happening to market rents.

Tony, it's Colin. Again, we were very pleased to have our 49th straight quarter of positive rent roll ups. You mentioned the 9% number, which is very strong. what was below the double-digit cash rent spread we had in the first quarter. But I would remind you that quarter-to-quarter the rent spreads are a function of the mix in that particular quarter. And at the same time, they're really a function of terms that were perhaps agreed to a quarter or 2 prior. So as I mentioned in past meetings, we have had, I'd say, at Cousins, a bit of a bias to drive occupancy. We now think that we are at an inflection point certainly, in most of our submarkets where we'll have an opportunity given the fewer blocks of space to both drive occupancy, but also drive net effective rents through hopefully higher rents and lower concessions. So we're pretty optimistic that in coming quarters, we're going to continue to post some pretty strong rent numbers.

Okay. And then my follow-up is just with regards to cap rates, you talked about just the noncore being in that 9%, 10% range on the dispositions. Any sense as to if you continue to make investments, and it sounds like you're still considering some further asset sales, what the spread might be that we should think about, like where is the spread of the noncore stuff is 9% to 10% versus maybe where you might buy?

Again, it's Colin. The -- one, I'd say with the recycling activity that we've done really over the last 18 months, but even over the last 5 years, we -- while we might have a noncore asset or 2 left, we really believe that at Cousins we're in a fortunate position, where we're almost at a noncore, and we just are transitioning to -- we'll always have a bottom 5%. And so I think in time, the spread of any sale that we make relative to how we reinvest it is going to be -- will be much tighter which is a great position to be in. And so I would just refer back again to our strategic priority, which is to drive sustainable earnings growth while maintaining our best-in-class balance sheet and continuing to enhance the quality of our Sun Belt office portfolio. So with leverage levels as strong as they are and the overall portfolio as strong as it is, we're not in a position where we need to sell. We will sell if we can make sense that the source of the cash, i.e., a disposition relative to the return on the use of cash creates accretion to our earnings profile. And if it doesn't, we're just unlikely to be a seller.

The next questions will be from Blaine Heck at Wells Fargo.

It sounds like the interest in 201 North [indiscernible] is strong and potentially outpacing your expectations. I guess can you give a little more color on the overall square footage of prospective tenants that you're having discussions with? What types of tenants are most interested, kind of what industry and how motivated you guys are to get some near-term pre-leasing done as you get closer to completion versus maybe continuing to wait for better rent economics.

It's Richard. The size range of the prospects in our pipeline right now are pretty diverse. We have a couple that are as large as 200,000 square feet. I would say they're really early, and they've frankly been in the pipeline for a little while. And so not terribly fast to move, what we have seen over the last couple of months is more activity in the single floor to 2 to 3, 4 level, so call it 25,000 to 75,000 square feet. And those tend to be not the larger financials -- traditional financial services, but more niche financial services uses and then also legal and general professional services. So it's a good diverse pipeline from an industry perspective. In terms of how aggressive we'll be, again, we are being patient, but we are by no means hitting the brakes completely on leasing. So if we see a great business that we think is a good fit. We are going to be aggressive and still look in certain instances. And I think 201 North [ Tryon ] is one where we will look to drive occupancy. But again, we're also keeping an eye on doing what's right for the long term and where we think we can hold out, especially on a bigger requirement and get better economics, we're going to look to do that.

Okay. Great. That's helpful. I guess related to that, if you were to sign a lease on that space today, could it be rent paying in early '27 at completion? Or would the build-out of the specific base kind of push revenue recognition to later in the year or even '28?

We do have a couple of floors that are left over floors from prior tenants that are in really good condition. So it is possible that if somebody wanted plug-and-play space, we could get them depending on their timing and get them in pretty quickly. But I would not expect that to be the base case. I think what we're going to see is that it will likely be late '27 to maybe '28 when we actually start to get occupancy on a traditional deal that requires a full build-out.

Yes, Blaine, last quarter, I mentioned that the last quarter, I mentioned that based on our prior experience with a lot of the renovations that we've done that we oftentimes see a pretty material change in the rental rate that we can achieve. In some cases, $5 a square foot or more from the, call it, the mid-construction rent profile to, hey, this is a finished product, you can walk to our kind of experience the space. And so we're very mindful of that, particularly when we think we'll be signing 10- and 15-year leases. So if you got a waiting until year-end to achieve a $5 foot premium is out there, we'll certainly be very thoughtful and think through that. But again, if there are certain situations that come along for a floor or 2, that can drive some near-term occupancy, we'll look at it. But I think we just got to balance it because it's a pretty significant, we think, jump in the rental rate profile when this project is done at year-end.

Okay. That makes a lot of sense. And then last one, just switching gears to the potential development opportunities you're pursuing. . I was hoping you could give some color on where your required returns or yields are in the current environment, whether you link towards build-to-suit or have the capacity to take on some risk and speculative construction and related to that, whether there are any pre-leasing hurdles that you'd kind of need to clear?

Blaine, it's a broad question, and I think, ultimately, our view is it's very situational I think certainly, development as an overall opportunity is becoming more viable to Cousins because we do have our own capital and our own development platform, and there are fewer and fewer blocks of available space. So I think ultimately, what the return profile is on a development and absolutely would be a premium over acquisition cap rates, depending ultimately what that level is. Is it more build-to-suit? Is it speculative? We would expect to be compensated if we're taking more speculative risk. So I think we're going to just ultimately have to evaluate those opportunities as they come. I do think they're we are seeing that more broad-based across a lot of our different markets. And so we are hopeful that we are going to identify compelling projects that we'll have compelling returns relative to the risk. But I want to be careful in terms of kind of quoting a specific number. I think competitively that could put us in a disadvantage.

Next question will be from Andrew Berger at Bank of America.

I just wanted to touch on leasing volume and sort of level set expectations going forward. Obviously, again, very strong first half of the year. But just given you have relatively lower expirations for the remainder of this year in 2027. Could you just help us think about what type of whether or not the volume should taper off at all as we sort of get back into the back half of this year in '27? Or it sounds like the late-stage pipeline is still pretty robust. Do you feel like there's enough new demand coming for later and later, so let's say, 2028 and beyond to sort of just help sustain this type of volume going forward.

Yes, on -- again, it's hard for us to predict forward leasing volumes because, again, that is very situational and sometimes things beyond our control. I guess I would characterize the first half of this year were the 2 quarters were both in the top 5 largest leasing volumes in the history of the company going back 60-plus years. I think kind of looking forward, though, we're still confident that leasing volumes could achieve above-average levels relative to the last 3 to 5 years because we are seeing increasing demand, and it is really supported by the two trends we've talked about the flight to quality in the Sunbelt migration. So we do think we're going to be above average trend, but at the same time, we can't promise kind of top 5 quarters every single quarter. but we're optimistic that volumes will continue to be strong. And I think kind of one other trend that I think will be supportive of leasing volumes. While you're right, we've got less available space. One thing that we're now seeing in the market is a trend of early renewal ask from some of our larger customers. And I think if anybody is evaluating the office market and understanding the relative strength or is it a landlord or tenant-friendly market. When you see an uptick in early renewals that typically signals customers expect that rental rates are going up and they're going to have fewer options in the future. And so they're trying to pull forward and lock in some of those renewals early. And I think that could be a strong source of leasing demand for our portfolio.

And I just wanted to circle back to Charlotte. I know it was mentioned that there's a couple of larger expirations coming up. Can you just talk about prospects for those spaces and whether or not the current leases are above low market?

Sure. I spoke to -- this is Richard. I spoke to the fact that the pipeline in Charlotte has increased pretty substantially quarter-over-quarter. And that applies not just to 201 North [ Tryon ] but also the 550 South. We've had probably the most robust pipeline 550 so far this year as we've had year-to-date. So I feel good about it. As I mentioned, we've got 24,000 square feet. It's roughly about 4% of lease of new deals and leases, and to be clear, the expirations that we have that are at 550 were actually more or less in the second quarter. So that happened. They just show up in the occupancy numbers starting in the third quarter.

And we've talked about these expirations [indiscernible] half...

Next question will be from John Kim at BMO Capital Markets.

Colin, you mentioned net new supply not increasing until 2030. And I just wanted some clarity as to if this is all of your markets? Or are there certain markets where this supply might come earlier. But aside from that, where do you think rents could go over the next few years, just given it seems like a unique situation with not a lot of new supply, especially the type of assets that you own and improving demand at the same time.

We've been predicting this for many quarters of a pending shortage of Tier 1 high-quality space because demand was improving and there has been a no new supply. And so my commentary around 2030 is here we are in the second half of 2026 and the lead time to build is typically somewhere between 3 and 4 years. So I really don't think you're going to see any meaningful uptick in deliveries until that time. And so again, if the market is already tightening today and very little new supply able to deliver in that time frame, I do think that you're ultimately going to see in some cases, a pretty material increase in net effective rents. It's just basic supply and demand. And we've already seen that in some markets. I think if you looked at Uptown Dallas, that is a, I'd say, a pretty good proxy of how that works. And it's not a simple 3% a year change. We've seen rents in Uptown Dallas over the last 5 years, probably almost double on their kind of base net rental rates. Not saying that's going to be the case in every market. But as you have increasing demand and just few options for customers, it will lead to, I'd say, more meaningful rent growth and net effective rent growth that is not just a linear kind of 3% a year. I think it could be double-digit type rent growth.

Okay. And I'm not sure if you addressed this on the call, but, I guess I'm lost in your preferred investments, what is the coupon rates on your investments? Do you plan to acquire the assets upon completion? And has the demand in AI in Austin, has that changed your view on increasing your overall exposure to that market?

It's Kennedy. Yes, we're really excited about [ Fifth & Walsh ]. I did mention that we are getting a 10% preferred return on our position. And as you alluded to, we do have a right of first offer to purchase it. So we'll make that decision if and when that comes up, but it's the type of assets that fits right within our portfolio, and it's already 58% pre-lease, which I think is a testament to its reception in the market. So we're excited about that, and I think we've always remained confident in Austin's ability to be pretty resilient. And certainly, having this AI demand is helping that. And we've been able to rebalance our position there a little bit with the recent dispositions. And so we really like our portfolio that's here.

And John, I'd just add that we're excited to partner with [ Endeavor ]. They are a terrific local sharpshooter in Austin. We've known them for many years and worked with them for many years. They help us lease our product up at the domain and so to expand our relationship with them to this new project at [ Fifth & Walsh ], we're excited and look forward to working with them more.

Okay. And can I just ask on Neuhoff now that it's -- the office is basically stabilized or fully leased. What is the updated stabilized NOI on that project? And what kind of pre-leasing are you required to move forward with Phase II? I'm not sure we've given an updated stabilized NOI. But in terms of Phase 2, I mean, look, we're having discussions with a variety of size customers, the rents. And as Colin alluded to, need to be higher than our current project, but we feel like we can achieve those. So there's not a black and white line, but we want to make sure that the rents and the -- we feel like the project has been validated, but the rents are achievable. So we're closely watching that. We do have a partner in that project. So we'll make that decision together as the discussions evolve.

Next question will be from Nick Thillman at Baird.

Colin, you touched a little bit on just the pull forward of renewals for 2028, 2029. I was hoping you could maybe bucket the renewal activity in 2Q? And what's included in the pipeline of those leases that are rolling out in '28 and '29 compared to '26, '27%. I know that the '27 pool has a little bit of some shift with 111 coming out of there. I know there is some near-term role and move out on that asset in particular. So just if you could just break that out, I'm guessing it has to do with the five larger over 50,000 square foot ones, but just a point of clarification on that.

Well, the -- if you look at the second quarter activity, I think renewals accounted for about 55-ish percent of the activity, and as we look forward to the existing late-stage pipeline that Richard outlined, I'd say the percent of new and renewal there is about 50%, which is what it typically is. I think that the -- as we look out in future quarters, perhaps we could see kind of more of these early renewals happen. I'd say this is a recent phenomenon that -- of discussions on some of these early renewals, and I say they're really not yet reflected in our late-stage leasing pipeline.