Cousins Properties Incorporated

Good morning and welcome to the Cousins Properties fourth quarter 2022 conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference message by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one in your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I'd like to turn the conference over to Pam Roper, General Counsel. Please go ahead.

Thank you. Good morning and welcome to Cousins Properties' fourth 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 Azema, 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 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 law, 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 reports 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 the potential risks contained in our filings within the SEC. With that, I'll turn the call over to Colin Connolly.

Thank you, Pam, and good morning, everyone. We had a strong fourth quarter at Cousins to close out a productive 2022. On the earnings front, the team delivered 66 cents per share in FFO and same property net operating income increased 2.5% on a cash basis. Importantly, we leased 632,000 square feet during the quarter with a 7.3% cash rent roll-up. Excluding Houston, where we signed a strategic 328,000 square foot renewal and expansion with Apache, the cash rent roll-up was 27.7%. For the full year 2022, we executed approximately 2 million square feet of leases with a 9.5% cash rent roll-up. These are terrific results. Before providing an update on our strategy at Cousins, I will share a few observations on the macro environment. First, to fight inflation, the Federal Reserve and other central banks around the world have rapidly raised interest rates to slow economic growth. Financial conditions have tightened. In response, companies are becoming more efficient. In some cases, this includes employing fewer people and reducing office space. Second, we are seeing an increase in office utilization. According to CASEL, physical office occupancy averaged over 50% during the last week of January. the highest since the start of the pandemic. Austin, our second largest market, led the survey at 68%. As the health crisis fades and financial pressures grow, CEOs are increasingly more focused on results than surveys. Rebuilding culture, collaboration, and mentoring are now clearly priorities for innovative companies. Return to office mandates have accelerated, and this trend is likely to continue. Third, there is little to no leasing demand or capital available for older vintage, lower quality office properties. As a result, the values of these properties will likely reprice to facilitate a repurposing or even a teardown. This process will take time to play out. In the meantime, these types of buildings will likely stagnate and have a reduced impact on the overall office market. Lastly, the pipeline for speculative new development projects is shrinking. So what are the implications for office real estate? In the short term, leasing demand is likely to soften. Expanding office footprints is challenging amidst shrinking headcounts. However, silver linings are taking shape. The office market has begun the process to rebalance. Our customers are returning in greater force. Accelerated obsolescence is reducing the existing inventory. New development is minimal. And after companies right-size and adapt to a more normalized world, they will grow again. Improving supply and demand fundamentals are not that far over the horizon for premier properties. The trend of growing companies distributing their workforces across attractive, affordable markets in the Sun Belt is still in the early innings. The flight to quality continues. Leasing demand is outsized for premium workplaces in amenitized locations. The puck is headed towards our Sun Belt trophy portfolio. Our conviction around our simple and compelling strategy to build the preeminent Sun Belt REIT continues to grow. As I mentioned, market conditions will likely become more challenging in 2023. However, we built Cousins to thrive during all phases of the economic cycle. We are exceptionally well positioned today. Let me highlight why. First, we own the leading Sunbelt trophy office portfolio in the best submarkets in Atlanta, Austin, Charlotte, Tampa, Phoenix, Nashville, and Dallas. Likely surprising to some, our customers are growing. During 2022, our renewing customers expanded by 162,000 square feet in total. Importantly, our lease expirations through 2024 averaged just 5.1% per year of annual contractual rent, among the lowest in the office sector. This positions us favorably to grow occupancy despite a softer market. Next, Our $428 million development pipeline with the office component 63% pre-leased is appropriately sized and positioned for the current climate. We will benefit from meaningful incremental NOI during 2023 and 2024 while having only modest speculative risk. We approached 2022 with caution. While our asset values were repricing, we intentionally and patiently prioritized our best-in-class balance sheet over new investments. Our net debt to EBITDA closed the year at 4.9 times. This compares to the Green Street sector average of 8.2 times. Importantly, we have no significant near-term loan maturities in approximately $950 million available on our $1 billion revolving credit facility. Simply put, We have significant liquidity and capacity to pursue compelling new investments in a dislocated market when many peers now lack capital to compete. In closing, we are mindful of the potential impacts of higher interest rates and a slowing economy. However, over the long term, we are optimistic that Premier Workplaces will separate into its own asset class with improved sentiment. Peasants is an exceptionally strong position We are in the right Sunbelt markets. We own a trophy portfolio. We have a fortress balance sheet. And our talented and creative team is a differentiator. Before turning the call over to Richard, I want to thank all of our employees at Cousins who provide excellent service to our customers. Their dedication, resilience, and hard work continue to propel us forward. Thank you. Richard?