Cousins Properties Incorporated

Cousin 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. Today's presentation will be an opportunity to ask questions. Note that this event is being recorded. I'd like to turn the call over to Ms. Pamela Roper, General Counsel. Please go ahead.

Thank you. Good morning and welcome to Cousin's Property 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 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 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 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 report from 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 risks is contained in our violence with the SEC. With that, I'll turn the call over to Colin Connolly.

Thank you, Pam, and good morning, everyone. We had a strong second quarter at Cousins. On the earnings front, The team delivered 68 cents per share in FFO, and same property net operating income increased 3.7% on a cash basis. We leased 435,000 square feet during the quarter with a 7.9% cash rent roll-up. New leases and expansions totaled 343,000 square feet, representing 79% of total leasing activity. These are terrific results. I will start with a few observations on the macro environment. The Federal Reserve has rapidly raised interest rates to fight inflation. As a result, the economy is moderating and financial conditions have tightened. Real estate debt is less available and significantly more expensive. A meaningful bid-ask spread has frozen the investment sales market, but none of this should be a surprise. This is all typical behavior in a tightening cycle. Over the short term, the macro narrative for the office sector is likely to get worse before it gets better. The media will highlight rising vacancy rates and accelerating loan defaults. This reporting will not be wrong. However, this news will not be all that relevant to Cousins. Why do I say this? Because as they say, where you invest matters. At Cousins, We own a fantastic collection of lifestyle office properties located in vibrant Sunbelt neighborhoods with terrific amenities. Our assets are entirely differentiated from traditional office in older downtowns and nondescript suburban locations. Importantly, we are seeing green shoots in our portfolio. I'll highlight the trends. First, the return to work is accelerating in our properties. As it turns out, lifestyle office properties are occupied by ambitious professionals who value an in-person experience, with maybe the Friday exception. Collaboration, mentorship, and serendipitous encounters are key to advancing their careers. Come visit one of our properties, and you will see a very different story than the next Castle headline. Importantly, as the return to work process plays out, We have seen instances where our customers realize that they do not have enough space to support the hiring of the past several years. Richard will touch on an exciting example of this at our Domain 8 property in Austin this quarter. Second, the flight to quality is becoming more pronounced. The net absorption and vacancy numbers prove this out. To illustrate, according to JOL, 75% of the vacancy in Atlanta is in just 20% of the inventory. That statistic is probably eye-opening to some. Third, the flight to capital is increasingly more important. Historically, landlords evaluated the credit of prospective customers. Today, it goes both ways. Prospective customers and their brokers are now evaluating the credit of their landlords. Not surprising, Owners with sound capital structures like Cousins that can fund leasing costs and invest in their properties are growing market share. Fourth, there is little to no capital availability for older vintage, lower quality office properties or for speculative new development. So what are the implications for the office sector? It is not a one-size-fits-all answer. The lowest quality traditional offices in uninspiring locations are emptying and will stagnate until they are repurposed or torn down. At the same time, lifestyle office is filling up and it will thrive. As I said last quarter, the office is not dead. Obsolete office is dead. The market and the media continues to underappreciate this. We believe that there is great opportunity for investors who do. So 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 competition. The pipeline of new construction is shrinking. And demand remains firmly focused on the best lifestyle properties in the best submarkets. Just yesterday, JLL announced that the inventory of U.S. office space is on track to shrink in 2023 for the first time on record. Supply and demand are rebalancing. We believe this process will lead to tightening market conditions for lifestyle office. These are clearly positive tailwinds for Cousins. In closing, we are mindful of the potential impact of higher interest rates in an economy that could slow. However, we built Cousins to thrive during all phases of the economic cycle. and today we are in an advantageous position. We operate in leading innovation growth-oriented markets. We own a trophy portfolio of lifestyle office properties with modest near-term lease expirations. We have a fortress balance sheet with minimal near-term debt maturities, and we have a well-covered dividend. Importantly, we have significant liquidity and capacity to pursue compelling new investments in a dislocated market when many peers now lack capital to compete. However, the downward repricing of assets in the private market is still playing out. Thus, we will remain patient, disciplined, and continue to prioritize driving cash flow and maintaining a strong balance sheet. We are watching closely for new opportunities, though, and we will be ready when it is time. Before turning the call over to Richard, I want to thank our employees at Cousins who provide excellent service to our customers. Their dedication, resilience, and hard work continues to propel us forward. Thank you. Richard?