Cousins Properties Incorporated

Good morning, ladies and gentlemen, and welcome to the Cousins Properties first quarter conference call. At this time, all lines are in a 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. This call is being recorded on Friday, April 26, 2024. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead.

Thank you. Good morning and welcome to Cousins Properties' 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 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 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 risks 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 start to 2024 at Cousins. To summarize, we delivered 65 cents a share in FFO, which beat street consensus, and we raised our full-year guidance. We reported same-property net operating income growth of 6.6%. We leased 404,000 square feet with a positive cash rent roll-up of 5.3%. This marks our 40th consecutive quarter with a positive cash rent roll-up. We ended the quarter with net debt to EBITDA of 5.25 times, which is among the lowest in the office sector. Importantly, as Greg will mention in more detail, we received a BBB debt rating from S&P and a BAA2 debt rating for Moody's. Both are solid investment grade ratings that significantly enhance our access to capital and financial flexibility. These achievements highlight the strength and resiliency of our leading Sunbelt lifestyle office portfolio and best in class balance sheet. Before discussing our priorities at Cousins, I will start with a few observations on market fundamentals. First, The return to work and lifestyle office properties continues to accelerate. Many employers continue to require greater office attendance. Since just last quarter, UPS, NCR, and Truist have all announced a five-day-a-week in-office policy here in Atlanta. More are likely to come. As a result, our parking garages are filling up and demand for our space is increasing. Second, there remains little customer or capital demand for the oldest CBD towers or suburban commodity properties. As a result, office vacancy is highly concentrated in a small subset of buildings. According to JLL, just 30% of office buildings comprise more than 90% of the overall vacancy across the country. These properties will stagnate until they are repriced and then either 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 cost and higher interest rate environment. Not surprising, groundbreakings have fallen to all-time lows. As a result, the overall inventory of office buildings in the United States is contracting just as leasing begins to improve. Much like the retail sector last decade, market forces, rebalancing the office market in real time and there will be divergent outcomes lifestyle office will thrive with improving demand and reduce competition while the lowest quality commodity office disappears turning of the capital markets asset level debt and equity for office remains limited and expensive as a result the investment sales market is soft conversely The public markets show signs of improvement. Liquidity has grown and spreads have tightened, especially in the unsecured debt market. We hope this is a positive early indicator. Cousins remains very well positioned as the cycle improves. Today, we own the premier lifestyle office portfolio in the Sunbelt. Our lease expirations through 2025 are among the lowest in the office sector. Our balance sheet is undoubtedly the best in class. Our strategy has proved resilient even amid the disruption from the COVID pandemic and the impact of higher interest rates. Strategically, our team remains focused on driving earnings growth through leasing and investments while enhancing our geographic diversification, mitigating future large lease expirations, and maintaining our financial strength. Let me highlight a few of our key priorities. First, we intend to drive occupancy back to stabilized levels in the intermediate term. As you know, the office business can be lumpy, so this metric can bounce around from quarter to quarter due to a large move out or a large commencement. The Bank of America expiration in Charlotte next year is an example of this. 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 secular trends that will support our efforts. We have multiple competitive advantages, and we plan to grow market share. Second, 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 sources of capital, debt, equity, property sales, and JVs. As I mentioned earlier, liquidity and pricing is more advantageous in the public market today relative to private financing. This creates a compelling environment for a REIT like Cousins. Near term, acquisitions appear more likely than development. We will remain focused on Sunbelt properties that are or can be repositioned into lifestyle office. We are in active discussions with several owners and lenders in our evaluating opportunities across the capital stack. 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 development and redevelopment projects will be meaningful contributors over the next few years and highlight the value of our development platform. In closing, There are many competing forces in today's market. However, we built Cousins to thrive during all economic cycles. And today, we are in a strong 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 great access to capital. 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, resiliency, consistency, and hard work continue to propel us forward. Thank you.