Cousins Properties Incorporated

Good morning, and welcome to Cousins Properties' second quarter conference call. All participants will be enlisted in only mode. PE Assistant, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, there will be opportunity to ask questions. Please note that this event is being recorded. I would like to turn the conference over to Ms. Pamela Roper, General Counsel. Please go ahead.

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, 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 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 risk 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 severity and duration of the COVID-19 pandemic and the timing and strength of the recovery therefrom. 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 the 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 Kahn.

Thank you, Pam, and good morning, everyone. As we reach the midpoint of 2021, it has been wonderful to see many of our customers bringing their teams back to the office, and we anticipate seeing more post-Labor Day. While we continue to monitor public health guidance around COVID-19, and specifically any office delays brought on by the Delta variant, I also remain optimistic about the remainder of 2021 and beyond. Our team delivered strong financial results during the second quarter. Here are a few highlights. On the earnings front, the team delivered 69 cents per share in FFO. We leased over 484,000 square feet with a 12.9% increase in second generation cash rents. Same property NOI on a cash basis increased 7.1%. And our net debt to EBITDA at quarter end was 4.55 times, and G&A expenses as a percentage of total assets were at just 0.36%. Turning to the business, our ongoing conversations with customers provide us unique insight into their evolving long-term office strategy. And those plans are beginning to crystallize. First, most of our large, growing customers are excited about their return to the office. While the Delta variant could create delays, we now have conviction that a meaningful return to the office, it's not an if, it's just a when. In some instances, employees will return for part of the week, which some call hybrid. Importantly, the nature of the hybrids model, coordinated in-office days, which are designed to facilitate collaboration, necessitates real estate size for peak load. and likely does not have a significant impact on office demand. While it's hard to remember office life before the pandemic, this was already the reality for most technology and professional firms. Second, companies and people are migrating to the Sun Belt, where the business climate is more friendly, housing is more affordable, and commute times are shorter. Third, as companies return to the office and migrate to the Sun Belt, They are trading up to be in an environment where employees are excited to come to work and collaborate. This flight to quality trend existed before COVID, but is clearly accelerating. With these themes taking shape, in addition to our great quarter, we're seeing positive signs of economic recovery in our leasing, which continues to grow. Our late stage pipeline has increased significantly. and we are highly encouraged by the opportunities in front of us, both inbound growth and expansions from our existing customers. Importantly, we are seeing activity in our higher-profile vacancies, including 1200 Peachtree and 3350 Peachtree, as well as in our development projects like Domain 9, 10,000 Avalon, and 100 Mill. As I have mentioned in quarters past, We have a simple and compelling strategy at Cousins to assemble the premier urban Sunbelt office portfolio, to be disciplined about capital allocation so we can pursue new investments where our operating and development platform can add value, and to maintain a fortress balance sheet which provides us significant financial flexibility. At Cousins, We are positioned at the intersection of two powerful long-term trends, the migration of the Sun Belt and the flight to quality. As these accelerate, we are responding. Let me highlight some exciting announcements from yesterday. Through our relationships, we sourced an off-market transaction that includes the recapitalization of Newhoff, an exciting development project in Nashville, and the acquisition of 725 Ponce in Atlanta. Newhoff is a transformative mixed-use project that marks our strategic entrance into the Nashville market. It is located directly across the Cumberland River from Oracle's recently announced Nashville campus and provides a clear path for growth in this new market. Construction has already commenced on Phase 1 of the project, which will consist of approximately 388,000 square feet of office space, 542 multifamily units, and 60,000 square feet of experiential retail. Cousins' investment of $275 million represents a 50% ownership interest and includes a Phase II office site that can accommodate 275,000 square feet of additional space, as well as rights to future adjacent land parcels. Newhoff has a unique location a differentiated adaptive reuse component, and plans for an exciting new food hall. There is simply nothing like it in Nashville. We also acquired 725 Ponce, a 372,000 square foot office asset in East Midtown Atlanta for $300.2 million. We view this property as one of the highest quality and most interesting buildings in Atlanta located along the Beltline, one of the city's premier public spaces, and directly across from Ponce City Market, one of the most highly amenitized and active areas in town. 725 Ponce is currently 100% leased to customers including BlackRock, McKinsey & Company, and Chick-fil-A. Peasants also acquired a 50% ownership interest in adjacent land site for an additional $4 million, that can accommodate 150,000 to 200,000 square feet of additional development. We also announced that we sold One South at the Plaza, a 891,000 square foot, 58% leased office property in Charlotte for a gross sale price of $271.5 million. Some might ask, why sell One South now? First, We remain extremely bullish on Charlotte and have a best-in-class portfolio, a talented team, and great land sites in the South End for future growth. So the simple answer is, in our view, the purchase price fully values the upside from releasing a 1970s vintage office property with a high CapEx profile and provides capital to reinvest in new and more compelling opportunities. In summary, through these creative transactions, we have entered Nashville, an exciting new market for Cousins, acquired 725 Ponce, one of the best buildings in Atlanta, with an additional pad for future development, and funded these transactions in part through the sale of an older vintage property. Overall, this enhances the portfolio quality, gives us opportunities for growth, and shifts speculative leasing from a 47-year-old asset to brand new, highly differentiated product. Interestingly, the purchase price of OneSouth is approximately the same as our value from the tier merger pre-pandemic. This is a strong read through for capital interest in leading Sunbelt markets. As we look ahead and hopefully emerge from the pandemic, Our conviction around our Sunbelt Trophy office strategy is as strong as ever. Today, we have the leading trophy portfolio in the best Sunbelt submarkets in Atlanta, Austin, Charlotte, Dallas, Phoenix, and Tampa. Plus, we now have room to grow in Nashville. Large, growing companies recognize the value of office. Migration of the Sunbelt is on the rise. and companies continue to prioritize newer, amenitized, experiential office space that excites employees to come together. We are obviously watching the Delta variant and any potential impact. Nonetheless, we are thrilled with the company's position. As we look ahead to 2022, the declining fees from a terrific transaction with Norfolk Southern will be behind us, We have creatively and proactively addressed a large vacant block at OneSouth and are excited to pursue new opportunities with our rock solid balance sheet. In closing, the power of Sunbelt Trophy Office is becoming increasingly clear. Before turning the call over to Richard, I want to thank our entire Cousins team who work hard each and every day to bring their skills and talents to the company and to serve our customers and our shareholders. They are the foundation of our company's success, and I thank you. Richard?