Cousins Properties Incorporated

Good morning and welcome to the Cousins Property Second Quarter Conference Call. All participants will be in listen-only mode. If 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 that this event is being recorded. I'd now like to turn the conference over to Ms. Pamela Roper, General Counsel. Please go ahead.

Thank you. Good morning and welcome to Cousins Property's 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, and Greg Exima, 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 links on 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 security 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 risk 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 violence with the SEC. With that, I'll turn the call over to Colin Connelly.

Thank you, Pam, and good morning, everyone. At Cousins, 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 will drive strong results for our shareholders. In this challenging environment, we have taken great care to ensure that we are staying true to our values and principles. For this, I am thankful and proud. In the markets, we have adjusted our operations to ensure the safety of our employees and customers as our properties all remain open. Across our portfolio, physical occupancy has remained at approximately 15% since early June. Based on our discussions with customers, I anticipate a modest increase after Labor Day. However, ongoing health concerns related to COVID-19 and child care challenges resulting from remote schooling will likely create headwinds to physical occupancy throughout 2020. Despite the extraordinary environment, Our team delivered solid financial results during the second quarter. I will share a few of the highlights. We reported FFO of 66 cents a share. We collected 97% of total rents and 98% of office rents. We leased 303,000 square feet with a weighted average lease term of 7.6 years. Second-generation cash rents grew by 20.6%. Simply stated, our financial performance highlights the quality of our markets, our portfolio, our customers, and importantly, our team. It will come as no surprise that many are continuing to speculate about the long-term implications of COVID on the office sector. Work from home is undergoing a nationwide test and is proving serviceable thus far. We have spent considerable time discussing this with our customers. In fact, I recently asked the leadership of a Fortune 500 company with a growing Sunbelt footprint to share their perspective on the impact of COVID on their real estate strategy with the Board of Directors here at Cousins. I will summarize some of their findings. A heightened focus on highly amenitized buildings with outdoor space in urban settings. a prioritization of health and wellness, an increase in work flexibility for employees, a commitment to provide employees with dedicated personal space, and a reduction in overall density. As one of the company executives shared, the pandemic has not changed our plans. In fact, in many ways, it makes our space even more important. We've proven that remote work can be effective, but we've also learned that it is no substitute for being together for activities like collaboration, relationship building, mentorship, and so on. The executive also added, while we've been able to maintain productivity during these challenging times, we're trading on the trust, relationships, and understanding we built by being together. After a deep dive into their real estate strategy, this growing Fortune 500 company concluded that while the layout of the office would likely change post-COVID, their overall space needs would not. Their study found that increased flexibility would be offset by an increase in personal and collaboration space. This was encouraging feedback. And while it's just one example, we have received similar thoughts from many other customers. Personally, I believe that teams are ultimately stronger together. The observations provided by this particular company point to other trends that we have been discussing even before the pandemic reached us. Migration to the Sun Belt, flight to quality, and a growing emphasis on ESG. In many ways, the COVID pandemic has not created a new paradigm. It is simply accelerating trends already underway. Many years ago, we crafted a compelling and resilient strategic plan with the goal to position Cousins at the intersection of these trends. In short, we prioritize trophy Sunbelt properties, a disciplined approach to capital allocation, a best-in-class balance sheet, and leading local operating platforms. We have made great strides today. Let me highlight 100% of our portfolio is located in the best amenitized submarkets across the Sun Belt. 100% is Class A. Our portfolio is among the newest vintage in the office sector with an average building age of 2002. Our average building size is just 347,000 square feet with the overwhelming majority having multiple elevator banks. 77% of the portfolio is near mass transit while also enjoying an average parking ratio of 2.9 per thousand. Net debt to EBITDA of only 4.4 times and liquidity in excess of 1 billion. A $566 million development pipeline that is 82% committed and projected to add approximately 66 million of incremental NOI by year end 2022. Currently, there is a lot of discussion in the market regarding urban versus suburban and hub and spokes. At Cousins, we believe our portfolio has attributes that check the box for all of the above. In addition, the company has a fortress balance sheet and attractive embedded growth through our development projects. Nonetheless, we are not immune to the headwinds as a result of the COVID-19 pandemic, and the associated economic recession. Physical distancing and quarantines treat all markets the same. During this period, leasing activity will likely be muted and parking income will be impacted. The duration and severity of this downturn will be determined by the public health needs, which are and should be everyone's top priority. Yet pandemics and recessions do end And as companies are able to safely return to work, the economy can transition from surviving to once again thriving. However, this will take time. At Cousins, we have long been disciplined with our strategy to build the preeminent Sunbelt Office Reef. I believe that we are in the right markets with the right portfolio. Coupled with our strong balance sheet and an extremely talented team, We feel confident Cousins can weather this challenging environment. At the same time, dislocation in the markets could create opportunities for us. We are in a strong financial position to reinvest in our buildings, to take advantage of strategic land opportunities for future office and mixed-use projects, and to pursue compelling investment opportunities that can add value for shareholders. We will remain judicious and act at the appropriate times. Before turning the call over to Richard, I want to thank the Cousins team, which continues to work extraordinarily hard day after day in all of our markets. I appreciate your skills, your dedication, and your resilience. I'm so proud to be part of Cousins.