Good day, and welcome to the Cousins Properties First Quarter Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on a touch-tone phone. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead.
Thank you. Good morning, and welcome to Cousins Properties first quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer, Richard Hickson, our Executive Vice President of Operations, and Gregg Adzema, our Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon, as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Regulation 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 on 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. Before addressing the longer-term outlook, I want to provide a few financial highlights. As we have discussed in the past, 2022 is a transitional year for Cousins, and I'm pleased to report that we are off to a strong start. On the earnings front, the team delivered $0.67 per share in FFO. In addition, we leased 324,000 sq ft with a 15% increase in second-generation cash rents. Turning to the outlook, I will share a few facts. The Sun Belt represents only 26% of the national office inventory and yet accounted for 58% of new-to-market leasing in 2021. Over the past two quarters, buildings built since 2015 accounted for 62 million sq ft of national net absorption.
On the flip side, buildings built before 2000 accounted for negative net absorption of over 100 million sq ft. The tech industry has added 372,000 office-using jobs nationally since February 2020, leading all other industry sectors. ULI's top US markets to watch in 2022 are Nashville, the Research Triangle, Phoenix, Austin, Tampa, Charlotte, Dallas, and Atlanta. As you know, Cousins is invested in each of these cities. AFIRE's 2022 investor survey ranks Atlanta and Austin as number 1 and number 2 respectively for top global cities for investment. To emphasize, this is not a US ranking. This is a global ranking by very sophisticated investors. Collectively, these two markets account for 68% of our portfolio NOI. Why do I share this data? Because it highlights the trends driving the office market.
Office demand is migrating to the Sun Belt in a significant way. It's focused on the highest quality and most interesting product and is largely being driven by the tech sector. These trends make logical sense. Select cities in the Sun Belt have meaningfully urbanized over the last decade. These markets now offer an exciting alternative to gateway cities at a much lower cost. Not surprising, employers are following the talent. The COVID-19 work-from-home era has intensified the flight to quality. Culture, collaboration, mentorship, relationships, and trust all suffer in a permanent remote setting. To attract their teams to come together in person, more companies are shifting to exciting space in highly dynamic locations. The goal is to offer a more attractive daily experience than the convenience of the dining room table. Simply put, a growing percentage of office users are focused on a narrowing percentage of high-quality inventory.
Demand and rents are rising for the best properties in Midtown Atlanta, Buckhead Atlanta, Downtown Austin, The Domain, Tempe, the South End of Charlotte, The Heights in Tampa, to name just a few. Conversely, commodity or suburban products dressed up with a pickleball court just won't cut it with Amazon, Google, or Microsoft. Cousins is poised to capitalize on these tailwinds. We have been proactively assembling our Sun Belt trophy portfolio for over a decade. In the last two years alone, we have sold $1.2 billion of less relevant properties and reinvested the proceeds into the development and acquisition of 300 Colorado and Domain 9 in Austin. Neuhoff in Nashville, 725 Ponce in Atlanta, Heights Union in Tampa and The RailYard in Charlotte. These are all highly differentiated and amenitized properties.
Others are now recognizing the powerful Sun Belt trophy trends and trying to replicate our successful path. However, that is easier said than done, and it will require lots of buys and sells and noise. At Cousins, the heavy lifting to position our portfolio for the future is largely behind us. For this reason, I have never been more excited about the power of our platform to drive earnings and increase shareholder value. Let me share some specifics. Our 19 million sq ft portfolio is the highest quality and most differentiated office product in the Sun Belt today. It was approximately 87% occupied at quarter end due to recent known expirations, creating our largest organic growth opportunity in roughly 10 years. NOI growth has been de-risked and is not far away. To highlight, the portfolio is approximately 91% leased as a result of recent leasing wins.
In total, we have executed over 1 million sq ft of new and expansion leases that will commence in earnest at year-end and into 2023. In addition, our lease expirations through 2024 total just 17%, which is among the lowest in the office sector. Our current development pipeline totals $566 million, and the office component is 69% leased. We have a strong pipeline of potential new investments, including the first phase of our Domain Central mixed-use project, which is a transformational development opportunity in the heart of The Domain. There is nothing else like it in Austin, and we plan to start late this year. Looking across our footprint, we are confident that we can continue to pair strategic acquisitions with attractive new developments to generate blended value add returns.
We are mindful of potential near-term risks from inflation, rising interest rates, and geopolitical tensions. Notwithstanding, we have a tremendous opportunity in front of us at Cousins. Our unique and compelling strategy positions us at the intersection of powerful market trends. Our customers have accelerated their return to office. We own the premier Sun Belt portfolio. We have attractive organic and external growth opportunities, and we have a best-in-class balance sheet and team to capitalize on the moment. Before turning the call over to Richard, I want to thank our entire Cousins team, who are the foundation of our success, providing excellent customer service, skill and dedication to their jobs each day. Thank you. Richard?
Thanks, Colin. Good morning, everyone. Our operations team carried the positive operating momentum from the end of last year into 2022 and once again delivered great quarterly results. As Colin referenced, our first quarter performance demonstrates the strong and resilient demand for high-quality office space in the best Sun Belt markets. As you may recall, on our February call, I noted that Omicron variant had muted office utilization in the preceding months. I'm happy to say that we have seen a market improvement primarily since mid-March. Of particular note is that larger corporate users, namely in the technology and financial services sectors, kicked off previously announced returns to the office in that time frame. Whether a Cousins customer or not, this is positive on a number of levels.
While this activity started later in the quarter and did not have a meaningful impact on our first quarter results, it should bode well for the balance of the year. Now on to our quarterly operating results. Our total office portfolio lease percentage and weighted average occupancy were 90.5% and 87.4%, respectively. Please note that our operating portfolio composition changed this quarter with the addition of 300 Colorado from our development pipeline and the removal of Promenade Central while it is in redevelopment. Those portfolio changes had a modestly negative impact on our lease status and occupancy. Regardless, our weighted average occupancy declined 160 basis points quarter-over-quarter. In square footage terms, nearly 75% of our occupancy decrease came from two lease expirations in Austin.
I'm pleased to say that both of those blocks of space are completely backfilled with two great technology companies at a weighted average 20.1% higher cash net rent, and both are expected to be in occupancy in the fourth quarter of this year. As a reminder, we expect our reported occupancy to decline modestly next quarter and then begin to rebound as we move through the second half of the year. As Colin touched on, as of today, we have just over 1 million sq ft of signed new and expansion leases in our existing portfolio that have not yet commenced. To be clear, this does not include the signed 340,000 sq ft full building lease for our Domain 9 development in Austin.
These leases have a weighted average commencement date in late November 2022 and an average starting implied gross rental rate of $47.70, 8.7% above our current in-place gross rents. With only 11.3% of our annual contractual rent expiring through the end of 2023, we see this as a strong level of embedded occupancy and rental revenue growth in our portfolio as we move into 2023. Our team also delivered solid leasing results in the first quarter. We executed 37 leases for a total of 324,000 sq ft, 20% higher compared to the first quarter of 2021, and with a weighted average term of over 8 years.
This included 224,000 sq ft of new and expansion leases, representing 69% of our total leasing activity. Rent growth in the quarter was fantastic as well, with second generation net rents increasing 15.4% on a cash basis. Like in the fourth quarter of 2021, all of our core markets produced increases in cash rents this quarter. Finally, average net rent per sq ft on all activity in the quarter was a strong $35.45, the second highest quarterly rent for that metric in our company's history. While net rents were exceptional this quarter, leasing concessions, defined as the sum of free rent and tenant improvements, were elevated at $8.70 per sq ft per year.
This is about $1 higher than what we posted in the last half of 2021. There's no doubt that upward pressure and tenant improvements is a challenge, and we expect this to continue. However, I would note that concessions this quarter were disproportionately affected by one new lease for first-generation space at our 92% leased 100 Mill development in Tempe. This lease had higher costs on a per year basis because it was only for a 5-year term, shorter than normal for first generation space. Despite that, we determined that it was a smart investment in the occupancy of a likely fast-growing technology company. But for this lease, concessions in the first quarter would have been similar to levels seen in the last half of 2021.
Most importantly, though, our average net effective rent in the quarter was a solid $23.74, generally in line with net effective rents in our operating portfolio activity during 2021 and pre-pandemic. Similar to utilization, I noted in February that Omicron variant led to logistical disruptions in the leasing process, primarily tours, in late 2021 and into the new year. Fortunately, the disruption was short-lived and activity has been robust since. Beyond our reported first quarter leasing activity, here are some metrics that demonstrate the health of our leasing pipeline. The total sq ft of activity in our late-stage pipeline is about 40% higher than this time last quarter. The number of lease proposals outstanding at the end of the first quarter was 49% higher than at the end of the prior quarter.
There were also 25% more space tours in the first quarter compared to the prior quarter, and 40% more compared to the first quarter of 2021. These are encouraging trends. Switching gears, I think it is important to address what is arguably the most important trend in our business today, which is the flight to quality by office users. Both market data and our specific experience show that this trend is significant. As with most things, though, there are nuances. One important nuance is that this trend does not only apply to new product, though that is an incredibly important part of it, but it also applies to older product that is well located, amenity-rich, and has been properly modernized. A perfect case study is our recently completed redevelopment of Buckhead Plaza in Atlanta.
We started the project in late 2020 during COVID, and have since completed 262,000 sq ft of leasing activity, and we anticipate signing another 42,000 sq ft imminently. This activity will bring the project from 73% leased at its lowest point prior to the redevelopment to approximately 93% leased, not to mention at record rental rates. This is a fantastic success story for our team and our shareholders, especially in the midst of a pandemic. Our experience with Buckhead Plaza also makes us that much more excited that a sizable portion of our remaining portfolio vacancy is located at Promenade Central, Promenade Tower, and 3350 Peachtree in Atlanta. All of these properties are currently undergoing similar redevelopments that are scheduled for completion by the end of 2022.
Looking ahead, we have optimism about the remainder of 2022 and beyond. Cousins has the only large scale, high quality office portfolio located in the very best Sun Belt markets. As our country continues to hopefully get back to a renewed sense of normalcy, we expect to see even more customers returning to the office and a further acceleration in the critically important flight to quality trend. Before handing it off to Gregg, I want to thank the entire Cousins team. Regardless of the functional area they work in, they demonstrate resilience, hard work, and dedication every day. We thank all of you for everything that you do. Gregg?
Thanks, Richard, and good morning, everyone. I'll begin my remarks by providing a brief overview of our quarterly financial results, including some detail on our same-property performance, our parking revenues, our transaction activity, and our development pipeline, followed by a quick discussion of our balance sheet before closing my remarks with updated information on our outlook for the balance of 2022. Overall, as Colin stated upfront, first quarter numbers were solid. Notably, the 15.4% increase in second generation cash net rents marked the 32nd straight quarter this metric has increased. It's averaged almost 13% over that period. We were even able to raise rents throughout the COVID pandemic with positive second generation cash rent growth every single quarter since the beginning of 2020, averaging 13.5%.
Despite this strength, we still believe we can roll up rents in the coming quarters. Focusing on same property performance, cash net operating income increased 0.1% compared to last year, driven by a 0.8% increase in rents and a 2% increase in expenses. These numbers include two properties here in Atlanta, 3350 Peachtree in Buckhead and Promenade Tower in Midtown. Richard just talked about them moments ago, that have each had large recent move-outs and are undergoing significant redevelopments as we take advantage of the temporary vacancy to update both properties. Despite this work, which many of you have seen in person, we've kept these buildings in our same property pool. Excluding these two buildings, same property cash NOI would have increased 2.9% during the first quarter, a better reflection of the underlying fundamentals within our portfolio.
Also, as Richard mentioned earlier, while physical occupancy at our properties has accelerated, we did experience a pause during the first quarter, driven by the most recent COVID variant. As a result, parking revenues were essentially flat quarter-over-quarter. Context, parking revenues comprise between 5% and 6% of our total property revenues, and they remain about 20% below pre-COVID levels. Subsequent to quarter end, we acquired our partner's 10% interest in the two Avalon properties located here in Atlanta for a little over $43 million. This price included the payment of a promote to our partner who controlled the development sites, and it represented a negotiated value of $301.5 million. Our unlevered return after payment of the promote was a very healthy 18.4%. It's been a terrific investment for our shareholders.
Before turning to our development activity, I wanted to quickly highlight FAD, which increased again this quarter. I know it's not followed as closely as FFO, however, it's nevertheless a critical metric that we focus on here at Cousins, and I encourage you to focus on as you analyze us as well as other office companies. We provide a detailed calculation on FAD on page 33 in our quarterly financial supplement. Turning to our development efforts, as Richard mentioned earlier, one asset, 300 Colorado in Austin, was moved off our development pipeline schedule during the first quarter. The remaining development pipeline represents a total Cousins investment of $566 million across 1.5 million sq ft in 3 assets.
Our remaining funding commitment for this pipeline is approximately $300 million, which is more than covered by our existing liquidity and future retained earnings. Looking at our balance sheet, debt to undepreciated assets is a very low 28%. Fixed charge coverage is a healthy 5.6 times. Our debt maturity schedule is well laddered, and our weighted average interest rate is 3.2%. Net debt to EBITDA at 5.28 times, while still very low relative to our office peers, is up from last quarter, driven by a decline in EBITDA, largely attributable to Norfolk Southern's move out from Promenade Central to the new headquarters building we developed for them a few blocks away in Midtown Atlanta, as well as Expedia's move out from Domain 2 in Austin into their new space at our Domain 11 property.
As a quick reminder, and as Richard covered earlier, we re-leased 40% of the Norfolk Southern space at Promenade Central, primarily to Visa, and 100% of Expedia's space in Domain 2 to Amazon. Although it can be a little lumpy from quarter to quarter, we've managed our balance sheet between 4.5 and 5 times net debt to EBITDA since 2014, and we expect it to return to that range by the end of the year. I'll close by updating our 2022 earnings guidance. We currently anticipate full year 2022 FFO between $2.70 and $2.78 per share, unchanged from our prior guidance.
This guidance continues to include the settlement of approximately $100 million in forward equity contracts issued to fund our recent Heights Union property acquisition in Tampa on a leverage neutral basis. It also includes the Avalon transaction that I discussed earlier in the call. It does not include any speculative operating property acquisitions, dispositions, or new development starts. Our guidance includes the impact of rising short-term and long-term interest rates, includes the impact of operating expense pressure driven by macroeconomic factors, as well as an increase in physical occupancy. It includes the impact of supply chain challenges on both our and our customers' construction activities. Our customers, in particular, don't deal with architects and general contractors for a living like we do, and are often experiencing frustrating delays in completing their tenant improvements, which can delay our ability to recognize revenues.
As to earnings cadence, as I said in our February call, we expect FFO to be a little bit lumpy but generally increase as the year progresses. Visa moving into Promenade Central and Amazon moving into Domain 2 later in the year, combined with steadily increasing parking revenues and the stabilization of two recently completed development properties, 100 Mill and Heights Union, will drive earnings higher through 2022. With that, let me turn the call back over to the operator.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Blaine Heck with Wells Fargo. Please go ahead.
Great. Thanks. Good morning. Maybe for Colin or Richard. Cash rent spreads were very strong this quarter and higher than in many of your recent quarters. Is there anything to kind of unpack around that number? Were there any specific markets that were dominant in the leasing you did, or anything particular about those leases? Or would you say that the results are representative of the portfolio as a whole?
Yeah. Hey, Blaine. Good morning. This is Richard. I'd say, one, it's a balanced quarter for us, in terms of leasing activity. We saw good results in every market. Like I said in my remarks, every market had some level of roll-up. I'd say as usual, Austin is certainly producing higher cash rent roll-ups than most of our markets on average. I'll tell you, Atlanta is still very strong. Every market has been very, very encouraging. I think the only other thing I'd mention about this quarter's activity is that Phoenix kind of punched above its weight in terms of volume. We had some really good activity in Phoenix relative to our portfolio size, and had some very healthy roll-ups there too.
Great. That's helpful. Maybe just sticking with you, Richard. Can you talk a little bit about the Atlanta market? It seems as though Midtown continues to see a lot of activity, but Buckhead has been maybe a little bit slower to recover. Is that a fair characterization? Do you think we're anywhere close to a point where Buckhead starts to look more attractive from a rent perspective, and we could see some interest from the tenants that have been growing in Midtown in the Buckhead market?
Sure. You know, Midtown, no doubt, has been, you know, a great sub-market and kind of a leader in Atlanta. It continues to be very encouraged by the demand and activity that we're seeing there. Buckhead is healthy too. We're still very much fans of Buckhead. I think what you need to kind of do is like any sub-market, frankly, these days, as we talk about flight to quality and the kind of product that office users are looking for, you have to drill down and look at the different quality and locations of assets. I'd say it's not a coincidence I highlighted Buckhead Plaza in my remarks.
We've seen incredible activity there, both in terms of rent growth, some of our strongest rent growth, frankly, in our entire portfolio and in terms of total activity. I think it's highly specific as to the products that you're leasing. We're super encouraged about the progress we're making on our redevelopment project at 3350 Peachtree. It's getting to a point where prospects can really see what the end product is gonna look like. We feel good about Buckhead.
Great. That's helpful. Just one more from me. Colin, you talked about strategic acquisitions as part of the plan going forward. Can you just give a little bit more color on what you guys are looking for, whether it's tilted more towards core properties or something that has a bit of an value add component? Have you seen any effect on pricing as we've seen rates increase this year?
Well, good morning, Blaine. I think our acquisitions history has been focused on, you know, high quality assets that are strategic to, you know, our portfolio as a whole. When we see assets that, you know, they're in close proximity to other assets that we own and can create some synergies there or add additional flexibility for our customer base, you know, those are all, you know, very positive attributes. But we're always looking to upgrade the quality of our portfolio. If we can find opportunities to really leverage our platform to create additional value, again, those are in focus for us.
If you look over our track record, you know, some of those acquisitions have been, you know, highly value add. Others of those have looked more core-like, but again, have been strategic to our portfolio within a given market. I think a competitive advantage for us here at Cousins is we can also complement those acquisitions with our really strong development platform. Collectively, our acquisitions and development activities have blended some to some really attractive value add returns, and at the same time has allowed us to upgrade the overall quality of the portfolio and build some really attractive concentrations in the best sub-markets.
Very helpful. Thanks, everyone.
Our next question will come from Anthony Paolone with Barclays. Please go ahead.
Hi, good morning. You've talked about the benefit of companies moving to Sun Belt markets. I'm curious about how some of your longer tenured tenants, who have been there for a while are behaving when it comes to renewing. Are you seeing any change in their space utilization, their demand for space, their square footage as they renew their leases in a more hybrid environment?
Good morning, Anthony. You know, I would say to date, we've seen kind of less of change than one might think given a lot of the discussion about a hybrid workplace. You know, we've seen many customers within our portfolio expand. We've seen a handful of companies contract. I'd say oftentimes that contraction has been probably more specific to their kind of underlying business outlook. I think one thing that's particularly differentiated in our urban and highly amenitized portfolio, as you mentioned, hybrid, I do think flexibility will be something that will need to be offered by companies.
In an urban and highly amenitized setting, you know, our underlying users, by and large, are knowledge workers that are looking to come together again for the collaboration and the creativity. I think in the urban context, hybrid means, you know, the office and some flexibility. I think in a more suburban commodity setting, you're seeing customers make a, you know, more of a separate decision, which is office or remote.
To date, kind of in our portfolio, I think we have not seen kind of companies adopting a hybrid strategy, which is flexible and requiring folks to be in the office a majority of the time, much less of an impact on demand than perhaps you're seeing out in, as I said, more suburban commodity product.
Yeah, thanks. Maybe when it comes to acquisitions, you know, like to talk about your markets. Are you kind of happy with your current markets, or would you like to expand to one or two? Thinking particularly about South Florida, either Miami or West Palm or markets like that, where you're seeing a lot more, I guess, corporate activity recently.
Yeah. We're always evaluating at Cousins kind of new markets and new opportunities. I think for us, any decision to expand into a market, we really look at it through a lens of, you know, does it have, you know, certain structural advantages that create kind of macro tailwinds for growth and recruiting, you know, new companies and talent. At the same time, we look for markets that have got, you know, enough size to them that we feel confident that over time we can create critical mass in that market so that we can justify a team, you know, on the ground. That local operating platform and that entrepreneurial approach has really been a differentiator for us.
As we look across the Sun Belt footprint today, I think we're really excited about all of the markets that we're in. We just recently entered the Nashville market last year. We're excited about that, and I'd say don't feel opportunity-constrained across the markets that we're in today, whether it be Atlanta, Austin, Charlotte, you know, Tampa, Dallas, out in Phoenix. Again, we'll continue to look for opportunities, but we're happy kind of where we are. We're happy to have entered Nashville, and I don't see anything, you know, too broadly imminent as it relates to new markets.
All right. Thank you.
Our next question will come from Jamie Feldman with Bank of America. Please go ahead.
Great. Thank you. Good morning. I think in your initial comments, you talked about actually being able to push rents or rent growth in your markets. Can you talk more about, you know, kind of pricing power you do have on the leases you're signing, or how much you think rents are actually increasing in some of your markets?
Yeah, Jamie, if you look back over kind of the last year, you know, we have been able to drive top line rental rate growth. I'd say kind of in the mid-single digits on a percentage basis within our market. I do think that while we've been able to drive top line rental rate growth, I think in some instances we've been able to compress free rent, which has helped us drive our overall net effective rents. As Richard alluded to, we continue to see some pressure on TIs as construction costs have grown. Our customers are looking for us to kind of share in those increases in costs.
We've been pleased within our portfolio of how we've been able to drive rental rate increases. Again, as Richard said earlier, not all buildings, even in an urban context, are created equal. As I mentioned, you know, we are seeing a growing percentage of the demand focused on a narrowing percentage of the inventory, you know, even in places like Midtown Atlanta or here in Buckhead or downtown Austin. Those properties at the very top are able to drive rental rate growth. Those that are in the kind of the commodity and lower tier properties, I think are continuing to suffer.
Okay. Thank you. Then in Amazon's earnings last night, you know, they talked about maybe getting more efficient with real estate. Have you sensed any change from them? I know you have exposure to them obviously in several markets. You know, have you heard anything about what this means for office or any sense of a change in tone or behavior?
We really haven't seen any change in tone or behavior from Amazon. I'd say our understanding of their comments is that was more directed towards kind of industrial space as obviously there's been, you know, a pretty rapid growth in online, you know, retail activity with Amazon and perhaps I think, you know, perhaps overextended as it relates to industrial space, but we have not seen that directed towards the office market.
Okay. As you think about, you know, you also made the comment about, you know, you've done the heavy lifting to kind of prepare the portfolio. How should we think about what you still may wanna sell? That is still a pretty big pipeline, or you're kind of there in terms of getting rid of non-core?
Yeah, Jamie, I think we have done a lot of the heavy lifting, particularly over the last, you know, couple years, but certainly over the last decade, we've been kinda very carefully trying to cultivate and curate, you know, this portfolio of Sun Belt trophy properties. As we sit here today, we do believe that's largely behind us. If we were, I'd say at this point, we don't feel any pressure to sell an asset that we don't think will fit into our view of the future of office.
Certainly as we see new investment opportunities, compelling investment opportunities, whether that be an acquisition or development, and the best source of capital is a disposition, we'll absolutely look at those and in recycling capital in that manner. Again, I think we feel very pleased that you know, our portfolio is in great shape. You know, I'd say certainly, you know, assets for us that we look at, I mean, we're less than 10% now of the portfolio of things that would probably qualify for us as non-core.
Okay. If you're gonna continue to recycle when you find opportunities, does that suggest like, kind of you feel like the portfolio is at the maximum size or at the right size? You wouldn't wanna actually grow square footage?
No. Again, when we see and identify new compelling investment opportunities, again, we're gonna look for the best source of capital. I think where we sit today, that would likely be an asset sale. We could also evaluate a joint venture. In the not too distant past, right? The equity market and the stock price have been there to justify growing the company. Again, when we see those compelling investment opportunities, we'll look at all of our different funding sources of capital and try to make the best capital decision that's going to not only create, you know, shareholder value, but also balance our earnings trajectory as well.
How would you gauge, or explore, characterize the appetite for JV partners? Is there a decent bid right now?
Yeah, absolutely. I think for us, again, we're in a great position with the balance sheet and the portfolio that we've got. We've certainly demonstrated in the past that there's a strategic and compelling reason to joint venture an asset or a development. We've been willing to do that in the past, but it's typically, you know, it's not been driven for us for a need for capital. It's been driven by a compelling reason to, you know, strategically joint venture an asset.
Okay. Sounds good. Thank you very much for your thoughts.
Okay. Thank you, Jamie.
Our next question will come from Vikram Malhotra with Mizuho. Please go ahead.
Thanks so much for taking the question. I guess just building upon some of the previous questions, you mentioned, obviously, you've done a lot of heavy lifting over the last few years and just recycling, I guess lower quality, may have put pressure on same store or maybe it's really total earnings, given the process tends to be dilutive, at least historically. I'm wondering, as you look forward longer term, call it 3-5 years, what's the sustainable sort of cash NOI and earnings growth, whether that's FFO or FAD in your minds?
Hey, Vikram. Good morning. It's Gregg Adzema. Listen, appreciate the question. I think it's a great question. You know, we don't provide specific earnings guidance out beyond the current year, so I'm gonna be a little reluctant to provide you guidance about 3-5 years. I think the macro message, the thematic message from what Colin talked about in some of the Q&A earlier on, was that the heavy lifting is behind us and there's noise associated with that, and some of the noise associated with that can be dilution in earnings. It doesn't typically affect the same property pool because that just adjusts to, you know, to what's happening in the overall pool. It can be dilutive to earnings. You typically sell higher cap rate properties and reinvest in either a development pipeline that takes a while-
To capture the higher going-in cap rate or into acquisitions which might come right out of the gate at a lower cap rate. It can be dilutive. Like we've said, a lot of that is behind us. The portfolio is in terrific shape. The number of non-core assets is very low. To the extent that asset sales remain the best source of capital for investment opportunities going forward, you know, now that we've got very few non-core assets, the cap rates and the assets we sell will come down. That can be pretty powerful going forward. It has been a drag.
The combination of recycling the portfolio over the last few years, as well as some kind of lumpy fees that we've had, most prominently the Norfolk Southern fee, have really kind of obfuscated our true core earnings growth. The line of sight now to clean accelerated earnings growth is much shorter and much clearer going forward, and we're excited about that.
Okay. That's helpful. If I can just ask on the, again, related to earnings, just you mentioned TIs and, you know, I guess maintenance CapEx will depend partly on cost of construction as well or inflation. But we've seen obviously CapEx as a % of NOI move up over the last, call it, seven years. I'm just wondering for your portfolio, given the quality, like what should we expect as a good sort of run rate for maintenance CapEx going forward? Maybe a % of NOI or a range if that's just something you could share.
Well, I'm not sure how you define maintenance CapEx. We define CapEx into kind of two buckets, first gen and second gen. Second generation CapEx, which I believe is what you're talking about, has, you know, we measure it in totality, and for the last few quarters, it's been in the low $20 million each quarter. We also measure it not just in absolute basis, but as a percentage of total NOI. It's been running by and large in kind of the upper teens for the past many years. If you look at, you know, last year it was 17% of total NOI. For the past five years, it's averaged 17.5% total NOI. It's been a pretty consistent metric.
You know, there's been talk, I know a lot lately about, you know, an increased cost associated with making sure that your properties are attractive to customers. We've done that for years now. Our kind of run rate on what you're calling maintenance CapEx, what we call second generation CapEx, has been pretty darn consistent and remains consistent.
Okay, great. Just one more. We've talked obviously a lot about the quality divide from a lot of your peers in your markets and other markets. It just seems it's pretty consistent. I'm wondering if you can share specific examples or anecdotes just to get a better sense of the pipeline in maybe the top two of your markets of customers looking for new expansion space. Just maybe you can quantify it by industry or if there's specific names you can talk about in terms of just how big is this pipeline in this post-COVID environment over the near term.
Well, it, you know, again, Richard can touch on, you know, our current pipeline of deals that are in advanced kind of negotiations. I think there is, you know, certainly as strong as that number has been since the start of COVID, and in fact is really back to pre-pandemic levels. That's really coming broad-based across all of our markets. But again, in particular, if you look at, you know, Atlanta and Austin as an example, right? You've seen over the course of the last two years in the middle of a pandemic, you know, major announcements from companies like Microsoft, Amazon, Google, Meta, Oracle, Tesla, et cetera. If you kind of the list goes on and on.
Large national international growing companies that are choosing the Sun Belt for their growth and their expansion. It's pretty exciting time here in the Sun Belt. I think all of our economic development agencies across our footprint would share with you that their pipeline of activity, in particular office using pipelines, is, you know, has never been stronger.
Great. Thanks so much.
Our next question will come from Michael Lewis with Truist. Please go ahead.
Yeah, thank you. Gregg, I might have missed this, but what was in the interest and other income this quarter? That was about $2.3 million. In past quarters, that's been kind of a negligible line item.
Yeah. The thing that moved that the most this quarter was a payment for residual interest that we had in a joint venture that developed residential lots. I mean, you may remember a long time ago, Cousins was actually involved in residential lot development, a long time ago. It typically happened through joint ventures. When we liquidated one of those joint ventures, we retained a residual interest in future lot sales.
Okay. That's a one-timer.
It's a one-timer. Just to put a bow on this discussion, our joint venture partner came back to us recently, really out of the blue, and said, "Hey, you know, you've got this residual interest, can we buy you out of it?" We sold them our residual interest, and that's what's running through that line item.
Okay, got it. You know, you guys gave some encouraging leasing numbers and I agree with you on the flight to quality of the Sun Belt. I think all that makes a lot of sense. When I look at the portfolio, the occupancy and leased percentage was down sequentially in Atlanta, Austin, Charlotte, Phoenix, Houston, pretty much everywhere except Dallas and Tampa. When I looked year-over-year, you know, you leased up Charlotte, but I think you're down just about everywhere else. There's small differences, but you know, how should we think about that? You know, maybe what do you think about the occupancy or leased percentage? You know, what's the assumption and guidance for the rest of the year? Do you expect that to improve?
This is Richard. I want to clarify one thing with how our occupancy is reported in this quarter. I mentioned that we had some ins and outs in the portfolio, one of which was the Promenade Central asset coming out, which is obviously 100% leased and occupied, went to zero as it's going into redevelopment. That's actually making, as the way we report our occupancy, look like it went down in Atlanta, where it actually modestly went up. A little bit of a weird nuance with how we calculate those numbers relative to Atlanta. Austin, you know, already talked about the fact that those two leases that are already backfilled and will reoccupy in the back half of the year are really driving that difference or at least the majority of it.
then as you said, the others are really, you know, they're down, but they're fairly negligible differences and more kind of typical movements that we see any given quarter.
Yeah. On a macro level, you know, Michael, I would just share, I think the decline in occupancy has been, you know, again, a large driver of it has been some, you know, very specific known move-outs. At the same time, we've been actively during COVID, repositioning a handful of assets. Buckhead Plaza is one, 1200 Peachtree, now Promenade Central and 3350 Peachtree here in Buckhead. As we've been kind of going through that effort, we're obviously, you know, we think that we're, you know, meaningfully upgrading the quality of the building and that the rents should, you know, justify that investment.
We've seen some move-out of, you know, customers not willing to pay those rents, but we've had great leasing success behind it, and have been moving rents up and creating a lot of value. Just creates a little bit of a timing issue between, you know, signing of leases and occupancy. Again, as we shared, we've got, you know, over 1 million sq ft of leases that have been signed and not yet commenced. That'll be, you know, towards the end of the year into next year. That really explains, as you look at our statistics, you know, over a 300 basis point delta between our % occupied and our % leased.
You know, we hope that those should converge towards the end of the year.
Yeah, that makes sense. I wanted to ask about the Avalon investment earlier this month. I used some of the numbers in your supplemental, and I was coming out to, you know, that you valued that building at over $600 a sq ft around like about 5 caps, something like that. I don't know if those numbers are accurate, but maybe talk about that and kind of, you know, if they are accurate, you know, why that was an attractive use of some capital.
Well, Michael, again, just to frame that project as a whole, it's been, you know, it's been tremendously successful for Cousins. It's, you know, it's just under 500,000 sq ft in two buildings and really what is probably the most dynamic kind of mixed-use project kind of outside of the 285, you know, in town Atlanta. The project as a whole has been a home run for us on the development side. You know, we started both of those buildings on a pretty speculative basis. And as we came to an agreement with Hines, we obviously had some outside folks looking at value to determine what was a fair market price. And fro...
You know, from start of that project today, kind of a life of project return, it's over 18%, on an unleveraged basis, net of the promote. It's been a huge home run. We do think that there's further lift, market rent growth opportunity in those Avalon buildings. We already own 90% of it, and so from our perspective, it made sense to consolidate the ownership and own those 100%.
That's all for me. Thanks, guys.
Thank you, Michael.
Thank you.
Again, if you have a question, please press star then one. Our next question will come from Daniel Ismail with Green Street Advisors. Please go ahead.
Great. Thank you. Just a question on retention rates. I'm curious how, you know, now that we're post 2 years post-COVID, how retention rates across the portfolio have trended. When you guys are either planning on making new acquisitions or, you know, planning out the rest of the year, what do you think is a good number to use? Is it the way historical for most companies of quality were generally around 50%-60%? I'm curious how that has trended over the past few years.
Yeah. Daniel, I'd say it's still kind of early to tell and, right? We're just kind of emerging from the pandemic. I think a lot of companies are still, you know, trying to figure out, you know, their exact strategy. I'd say our specific, you know, again, statistics, a lot of the expirations that we've had, you know, this year and last year, you know, those retention metrics are skewed by, again, several large kind of known move-outs that were moving to new construction.
As we look forward, you know, again, I think given the quality of the portfolio that we've got and the dynamic locations that they're in, you know, our view is that, you know, our portfolio should outperform the market as it relates to retention and occupancy and driving rental rates. I'd say it's still just a bit early to define and ring-fence exactly what a retention rate would be.
Got it. Curious about life science across your markets. You picked up a life science or a partial life science asset in Tampa last year. Over the past, call it two quarters, we've seen two of the largest owners in life science enter the Sun Belt. I'm just curious, you know, any new thoughts on that potential opportunity and how Cousins is evaluating it?
Historically, life science has not been, you know, a large part of the market across the Sun Belt, and we are starting to see that change, and I think that's a positive for our overall markets and perhaps in time could create, you know, an opportunity for Cousins. But you know, if you look at downtown Austin and the addition of the Dell Medical School, we're seeing some activity here in Atlanta, you know, really a lot of that's driven by you know, things happening at Georgia Tech and the CDC. There is more attention and focus to that.
Certainly, that's something that, you know, that we're educating ourselves, getting up to speed and perhaps there could be, you know, opportunities for, you know, us to work with, you know, really, you know, folks that have got long-term life science experience but perhaps need and want some of our kind of local expertise and relationships. It's something that, you know, that we're certainly studying and watching, but overall, very encouraged that you're starting to see, again, the same migration, you know, out of places in the Northeast and the West Coast across all sectors and all fronts, really taking a hard look at what the Sun Belt has to offer today.
Got it. Thanks, Colin.
Yep. Thank you, Daniel.
This concludes our question and answer session. I would like to turn the conference back over to Colin Connolly for any closing remarks.
I wanna thank everybody for your time and today and interest in Cousins Properties. We're encouraged where the company is and where we're headed. I look forward to hopefully seeing many of you in person at NAREIT in June. Thank you.
This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.