Cousins Properties Incorporated

Good morning and welcome to Cousins Property's first quarter 2020 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Pam Roper, General Counsel. Please go ahead.

Thank you. Good morning and welcome to Cousins Property's 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 Greg Adzima, our Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable 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 link in the investor relations page of our website. 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. In particular, there are significant risks and uncertainties related to the scope, severity, and duration of the COVID-19 pandemic, along with the direct and indirect impact that the pandemic and related mitigation efforts, including governmental requirements and private sector responses, may have on our financial condition and operating results and those of our customers. 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, including those posed by COVID-19, 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. These are undoubtedly extraordinary times, and I want to begin by thanking the brave healthcare workers and first responders across this country who risk their lives every day to help the nation battle COVID-19. We are truly indebted to their work as our industry, communities, and country navigate unprecedented circumstances. At Cousins, the health and safety of our customers and our employees is our top priority. In these challenging times, we have taken great care to ensure that we are staying true to our values and principles. We have always taken the approach that if we take care of our dedicated employees who deliver excellent service to our customers, our company will drive strong results for our shareholders. This remains as true today as it did when Cousins began over 60 years ago. Cousins has been closely monitoring and following the CDC's guidelines to help protect the health of our teams, customers, and communities. Importantly, we have not had a Cousins employee to date test positive for COVID-19. We are thankful for that. Our employees who can work from home have been doing so since mid-March. We have also adjusted our operations to ensure the safety of our essential property employees as our buildings all remain open to support our customers. As we look ahead, we will continue to follow CDC state and local guidelines to fully prepare ourselves and our customers for a new normal when business returns to the office. We also believe we have an obligation to give back to the communities in which we live and work, especially as many of those communities currently face extreme hardships. As communities fight COVID-19 on many fronts, Cousins has committed $900,000 from our nonprofit foundation to support organizations fighting the virus on the front lines or helping those who are economically impacted by it across our geographic footprint. I firmly believe that crises don't build character. They reveal character. And I am so proud that Cousins has handled this difficult situation with compassion and grace. The COVID-19 pandemic arrived swiftly, and our lives changed almost overnight. Appropriately, we are all focused on what is to come. While I will delve into that in a moment, I want to quickly highlight our fantastic first quarter results. The team delivered FFO of 76 cents per share during the first quarter. Same property cash NOI increased by 11.4%. Second generation cash rents grew by 14.3%. Also, we closed three property dispositions, Woodcrest in New Jersey, Hearst Tower, and Gateway Village in Charlotte. Gross proceeds totaled over $533 million, which reduced our net debt to adjusted EBITDA to 3.66 times at quarter end. These underlying metrics are exceptional, and highlight the strength of our portfolio coming into this current health crisis. In just six weeks, the economy pivoted 180 degrees from robust growth to certain recession. Without question, the commercial real estate sector will be adversely impacted as leasing activity slows. Black Swan events, such as this current health crisis, never provide an early warning. Fortunately, at Cousins, we continuously plan both operationally and financially for potential disruptions. Many years ago, we crafted a compelling and resilient strategic plan. Our core principles include the following. First, assemble the premier Sunbelt office portfolio. Second, maintain a disciplined approach to capital allocation. Third, build the best-in-class balance sheet. And lastly, create strong local operating platforms. We strictly adhere to our principles, even during extended bull markets like the last several years. Thus, we are well prepared for this unprecedented change in the market. Looking forward, let me highlight the metrics that we believe will matter most. First, we have a fortress balance sheet with low leverage and liquidity of $1.1 billion. Second, our trophy portfolio of 19.4 million square feet is 93% leased as of quarter end, with 6.6 years of average lease term, and we have a diverse and financially strong customer base who, as of this morning, has now paid 95% of total rent in April. Importantly, our portfolio is among the newest vintage in the office sector and located in the best sub-markets across the Sun Belt. Third, our $566 million development pipeline remains on time and on budget as construction continues across our markets. Fortunately, the office development pipeline is 82% committed to leading companies like Amazon and Facebook and will add $70 million of NOI by year-end 2022. Fourth, Cousins entered this period as a lean organization, with G&A as a percentage of enterprise value at 42 basis points for the year-ended 2019, which is one of the lowest in the office sector, according to Green Street Advisors. Lastly, our dividend is well-protected, with an FAD payout ratio of 67% for the year ended 2019. Cousins is extremely well positioned to weather the impacts of this pandemic. Naturally, many are speculating about the long-term impacts of COVID-19 on the office sector. On one end of the spectrum, work from home is undergoing a nationwide test and is proving viable, albeit not efficient or optimal for most. On the other end, density and office spaces will clearly be reduced to protect employees' health. These two competing forces will play out over time, so it is far too early to project the net result. We do believe that the pandemic will accelerate other trends that have already been influencing the office market. The health and wellness of employees, both physical and mental, will likely increase in importance to corporate America, as it should. As a result, we believe that newer, higher quality, and better amenitized office properties should fare disproportionately well. Also, migration to the leading cities in the Sun Belt could potentially increase over time. Markets like Atlanta, Austin, and Charlotte offer dynamic environments while also providing greater personal space. Cousins is well positioned at the intersection of these two powerful long-term tailwinds. While the post-COVID-19 environment and what eventually becomes our new normal is still very fluid, we feel confident that we are in the right markets, with the right portfolio, and the right customer mix. This combined with an exceptionally strong balance sheet positions us for future growth opportunities and long-term success. We continue to believe that our strategy in building the preeminent Sunbelt Office REIT is unique and compelling even in the most challenging environment. As a final point, I would like to provide color on our decision to withdraw 2020 earnings guidance. Our approach should not be interpreted as a lack of confidence in the resiliency of our portfolio. Our decision is an acknowledgement that COVID-19 has an unknown duration and has created unprecedented economic uncertainty. At Cousins, we pride ourselves on our transparent relationship with the investor community. To that end, we provided detailed information in our supplemental on the potential impact of COVID-19 on our business based on what we know today. As you will note, our strong start to the year in conjunction with potential cost savings and long-term incentive compensation and interest expense, helps mitigate a meaningful component of the potential negative impacts in 2020 relating to the health crisis. Before turning the call over to Richard, I want to thank the Cousins team, which continues to work tirelessly in all of our markets. I particularly want to recognize our property management and engineering teams, who are essential to our building operations. They have continued to calmly provide outstanding service to customers under difficult circumstances. I appreciate your talents and dedication to the company. I have never been prouder to be part of Cousins. Richard?