Cousins Properties Incorporated

Good morning, ladies and gentlemen, and welcome to the Cousins Properties third 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. This call is being recorded on Friday, October 25th, 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 Property's third quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer, Richard Hickson, our Executive Vice President of Operations, Kennedy Hicks, our Executive Vice President and Chief Investment Officer, 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 violations. 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 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 third quarter at Cousins. On the earnings front, the team delivered 67 cents a share in FFO, and same property net operating income increased 4.4% on a cash basis. Leasing remained very strong. We leased 763,000 square feet during the quarter with a 7.2% cash rent roll-up. This was our highest quarterly leasing volume since 2019. In addition, we executed compelling and accretive new investments and completed our inaugural unsecured bond issuance. These achievements are fantastic and continue to highlight the strength and resiliency of our leading Sunbelt Lifestyle office portfolio and best-in-class balance sheet. Before discussing the quarter in more detail, I will start with a few observations on the market. Fundamentals are improving. The existing supply of office buildings is declining as older buildings are converted or torn down and new construction is almost non-existent. At the same time, leasing demand is accelerating as more companies return to the office. In a recent KPMG survey, 83% of CEOs said they expect their companies will shift back to requiring five days of office attendance sometime in the next three years. Amazon just made a five day a week announcement. We know of other Fortune 500 companies considering similar measures. Not surprisingly, National leasing volume during the third quarter was the highest since pre-pandemic. We believe vacancy is reaching a peak and market tightening is not far off in the lifestyle office sector. With these tailwinds, our team remains strategically focused on driving earnings growth while maintaining our best-in-class balance sheet. To do so, we are prioritizing both internal and external growth opportunities. Our portfolio was 88.4% occupied at quarter end, up from 87.6% at the start of the year. Given the quality of our real estate and the strength of our balance sheet, we intend to grow our leasing market share and drive occupancy back to more stabilized levels. Bank of America's expiration in Charlotte next year is a speed bump in that process, However, with the pickup and leasing activity and otherwise modest expirations through 2026, we believe there's meaningful upside in the cash flow of our existing portfolio in the intermediate term. Externally, we are executing on compelling investment opportunities. We closed on a joint venture acquisition of the Presidium Building in Midtown Atlanta, and subsequent to quarter end, we purchased a whole loan collateralized by St. Ann Court in Uptown Dallas. Both are high-quality assets in terrific locations. Kennedy will provide more specifics in a moment. The transactions highlight that we are open to a wide variety of opportunities, including debt, structured transactions, joint ventures, and property acquisitions at this point in the cycle. However, our core strategy remains the same. Invest in properties that already are or can be positioned into lifestyle office in our target Sun Belt markets. Near-term accretion remains a priority. While there are signs of falling, the private capital markets remain challenging for office. Asset-level debt and equity is limited and expensive. Many private equity investors have legacy issues in their portfolios and are on the sidelines. Conversely, the public markets show meaningful signs of improvement. Liquidity has grown in the unsecured debt market and spreads have tightened. Office REIT share prices have begun to rebound. This creates a compelling investment environment for Cousins as private and public market valuations finally converge. In conclusion, the office market remains highly bifurcated. There is little to no leasing demand or capital for commodity and older vintage properties. Values for these properties will reset so they can be reimagined or demolished. At the same time, the lifestyle office market continues to improve. New construction is at historic lows, while leasing demand is picking up. The market is rebalancing, and a shortage of premium space is not far off. It is Econ 101. Cousins is uniquely positioned for this environment. We built the company to thrive during all economic cycles, and today we are in a highly advantageous position. We are in growing and vibrant Sunbelt markets. Bank of America ranks our portfolio as the highest quality among all office REITs. Our leverage is the lowest across the sector. The pricing on our unsecured bonds traded the tightest spreads to treasuries among all traditional office companies. In short, we have great access to capital and are excited about the future for Cousins. Before turning the call over to Richard, I want to thank our talented Cousins employees who are the foundation of our success. They are dedicated, hardworking, and provide excellent service to our customers.