Cousins Properties Incorporated

Thank you. Good morning, ladies and gentlemen, and welcome to the Cousins Properties fourth quarter conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. As a reminder, this call is being recorded on Thursday, February 8, 2024. I would now like to turn the conference over to 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 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 gap measures and according to the 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 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. 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 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 strong fourth quarter at Cousins. On the earnings front, the team delivered 65 cents per share in FFO and same property net operating income increased 3.5% on a cash basis. We leased 453,000 square feet during the quarter with a positive cash rent roll up. For the year, we leased approximately 1.7 million square feet with a 5.8% cash rent roll-up. New and expansion leases accounted for 52% of our overall leasing activity during the year. Our weighted average in-place gross rent at year end 2023 was $46.95 per square foot, which is a 25% increase over year end 2019. These are terrific results. I will start with a few observations on market fundamentals. The return to work and lifestyle office properties is accelerating. Our properties are full of professionals whose lifestyle is centered around collaborating in the office with their teams, at least most of the time. As a result, our parking garages are filling up and demand for our space is increasing despite higher professional layoffs. Second, there is little to no customer or capital demand for old and tall CBD towers or suburban commodity properties. Many of these buildings will stagnate until they are repurposed or torn down. The process has already begun. Third, new supply is shutting in. The math for new development just does not work in today's higher interest rate environment. Thus, the supply of office properties across the United States is likely to contract just as demand begins to improve. The same process played out not that long ago in the retail sector. Remember when retail was dead? Until it wasn't? Market forces are now rebalancing the office market in a similar manner. In our view, a shortage of lifestyle office properties in the Sun Belt is not far off. Turning to the capital markets, asset level debt and equity for office is far less available and significantly more expensive today. The investment sales market has temporarily frozen as private players adjust to higher cap rates. Conversely, the public markets show signs of improvement. Coupons in the unsecured debt market, along with implied cap rates and discounts to NAVs for office REITs, have all tightened in recent months. Valuations in the public and private market for office now appear to be converging. A similar dynamic occurred after the global financial crisis and proved to be an attractive investment environment for REITs. In the short term, the narrative for the office sector is likely to get worse before it gets better. Media will focus on high vacancy rates and accelerating loan defaults, and this reporting will not be wrong. However, As I said last quarter, it will be an overgeneralization that conflates commodity office with lifestyle office. At Cousins, our priority is to drive long-term earnings growth while maintaining a strong balance sheet. We have pursued that goal over the last 12 years by aggressively executing an intentional strategy to build the leading Sunbelt lifestyle office REIT, which will benefit from ongoing regional migration and flight to quality trends. And we remain extremely well positioned for an eventual turn in this cycle. Today, we own the premier lifestyle office portfolio in the Sunbelt. Our lease expirations through 2025 are among the lowest in the sector. Our balance sheet is undoubtedly the best in class. Net debt to EBITDA of 5.1 times is the lowest in the office sector. To be clear, the disruption from the COVID pandemic and the impact of higher interest rates have been setbacks. However, our strategy has proved resilient. Surprising to many, our property net operating income was 23% higher in 2023 compared to 2019. Our 2024 guidance includes FFO that is flat year over year. We hope to outperform this and return to growth in the coming years. Let me highlight the building blocks. First, we intend to drive occupancy back over 90% in the intermediate term from 87.6% at year end 2023. As you know, the office business can be lumpy, so this metric will bounce around from quarter to quarter due to a large move out or a large commencement. However, On a multi-year basis, we are optimistic that we can return occupancy in our portfolio back to normalized levels. The return to office, Sunbelt migration, flight to quality, and the flight to capital are all trends that will support our efforts. We have multiple competitive advantages, and we plan to grow market share. We intend to allocate capital thoughtfully and accretively on a stabilized basis. We have a track record of identifying creative investment opportunities and funding them with the most efficient source of capital, debt, equity, property sales, and JVs. As I mentioned earlier, valuations in the private and public markets appear to be converging. This creates a more compelling environment for Cousins. Near term, acquisitions appear more likely than development, We remain focused on Sunbelt properties that are or can be repositioned into lifestyle office. And while it's still early, we are in active discussions with several owners and lenders. Medium and longer term, the development of market-leading lifestyle office and mixed-use projects will remain a key part of our growth strategy. Our current development and redevelopment projects will be meaningful contributors over the next few years and highlight the value of our development platform. Lastly, a decrease in interest rates would enhance our growth profile. While we obviously can't count on or control this, hopefully rates have peaked and begin to trend downwards sometime later this year. Any such movement would positively support asset values, transaction activity, and our development efforts. In closing, we are realistic about the many competing forces in the market. However, we built Cousins to thrive during all market conditions. And today, we are in an advantageous position relative to other office companies. We are in the right Sunbelt markets. We own a trophy lifestyle portfolio 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 I believe we have a unique opportunity and optionality in front of us. 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 continue to propel us forward. Thank you. Richard?