Cousins Properties Incorporated

The Cousins Property First Quarter Conference Call. All participants will be in listening 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 would 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 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 links on the Investor Relations page of our website, www.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 in the supplemental package posted yesterday, and a detailed discussion of some potential risk 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. We had a solid first quarter at Cousins and a productive start to 2023. On the earnings front, the team delivered $0.65 per share in FFO, and same property net operating income increased 4.9% on a cash basis. We leased 258,000 square feet during the quarter with a 6.1% cash rent roll-up. New leases and expansions totaled 159,000 square feet, and while renewals were modest as we had minimal near-term lease expirations. Overall, these are positive results in a tough economy. Over 10 years ago, Cousins set out to build the premier Sunbelt trophy rig while maintaining a fortress balance sheet. Our unique and compelling strategy has been supported by two powerful secular trends, a migration to the Sunbelt and the flight to quality. We aggressively positioned the company around these tailwinds. In just the last five years, we sold approximately 1.3 billion of predominantly older vintage properties and reinvested the proceeds in trophy acquisitions and attractive new developments. In addition, we completed a transformational merger with Tier E that expanded the portfolio and enhanced our geographic diversification. As a result, Cousins now owns a premier portfolio located in the best submarkets across the Sun Belt. Importantly, our portfolio is among the newest across the office sector with among the lowest near-term lease expirations. In addition, our balance sheet is among the strongest in the office sector with a net debt to EBITDA at 5.1 times with ample liquidity and no significant debt maturities until July of 2025. Now I'll touch 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. The real estate capital markets have dislocated. 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 Our growing parking income highlights this trend. As the health crisis fades and financial pressures grow, CEOs are increasingly focused on results. Rebuilding culture, collaboration, communication, efficiency, and mentoring are now clearly priorities for innovative companies. The return to office has accelerated and is likely to continue. Amazon and Meta, both early supporters of remote work, have recently reversed course. These announcements are a really big deal. Many more will follow. Third, there is little to no leasing demand or capital availability 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 has begun. It will take time to play out, and in the interim, these buildings will likely stagnate and have a reduced impact on the overall office market. Lastly, the pipeline for speculative new development projects is rapidly shrinking. So what are the implications for the overall office market? In the short term, leasing demand is likely to soften. Expanding office footprints is challenging amid shrinking headcounts. But more specifically, what are the implications for Cousins? Silver linings are taking shape for our Sunbelt Trophy portfolio. Our customers are returning in greater force. Accelerated obsolescence is reducing the competition. New development is minimal. And demand remains firmly focused on the best properties in the best submarkets. In addition, customers are increasingly focused on identifying properties with sound capital structures that can fund leasing costs. We call this the flight to capital. The market is rebalancing. Premier properties will fill up in time while undesirable properties are emptying. The office is not dead. Rather, obsolete office is dead. The market underappreciates this. Importantly, the flight to quality and the emerging flight to capital trends are providing a boost to our leasing efforts at Cousins. Our late-stage pipeline is now over 700,000 square feet with broad representation across markets, including in Nashville at our Newhoff project, and industries, including technology. The quality of our portfolio and the strength of our balance sheet provide a clear edge in today's leasing market. When the competition is upside down with debt, we plan to move quickly, be aggressive, and grow market share. And if necessary, we will prioritize increasing occupancy over pushing rental rates. Now is the time to press our advantage and grow cash flow. In closing, we are mindful of the potential impacts of higher interest rates in a slowing economy. However, we build Cousins to thrive during all phases of the economic cycle. Over the long term, we are optimistic that investors will differentiate premier office from traditional office and recognize a new asset class with much improved sentiment. Cousins is in a strong position. We are in the right Sunbelt markets