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 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, May 2 of 2025. 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, Greg Adzima, our Executive Vice President and Chief Financial Officer, and Kennedy Hicks, our Executive Vice President and Chief Investment 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. The 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. We had a terrific first quarter at Cousins. On the earnings front, the team delivered 74 cents a share in FFO. Same property, net operating income increased 2% on a cash basis. Leasing remained very strong. We completed 539,000 square feet of leases during the quarter with a 3.2% cash rent roll-up. This was our 44th consecutive quarter or 11 years of a positive rent roll-up. This is an extraordinary achievement. Given the solid first quarter performance, we have increased the midpoint of our guidance to $2.79 a share, which represents a 3.7% growth rate over last year. Our encouraging start to 2025 highlights 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 nonexistent. JLL reports that 10 million square feet have been removed from the U.S. office inventory since 2024 and predicts that inventory could decline by an additional 40 million square feet by the end of this decade. At the same time, demand is accelerating. Leasing volume over the past 12 months now reflects 89% of typical pre-pandemic activity and is steadily increasing. We believe vacancy has peaked in the lifestyle office sector and market tightening is not far off and already arrived in some submarkets. The return to normal is well underway. 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 90% occupied at the end of the first quarter, up from 88.4% at the end of the first quarter in 2024. We are thrilled to be making progress, growing our leasing market share and driving the occupancy back to more stabilized levels. As we have discussed, Bank of America's expiration in Charlotte this year is a small speed bump in that process. However, with the pickup and leasing activity and only very modest expirations through 2026, we believe there is meaningful upside in the cash flow of our existing portfolio in the intermediate term. Recent tariff discussions have created macro uncertainty. The most immediate impact to the REIT sector has been increased volatility in the capital markets. However, tariffs also create concerns over a softening economy, weaker demand, and higher construction costs. Given the strength of our markets, the quality of our portfolio of lifestyle office assets and fortress balance sheet, Dozens is uniquely positioned in the office sector to navigate these uncertain times. First, we have seen no impact in the leasing market to date. As I mentioned, demand remains robust across our markets and broad-based across industries. Many companies are still playing catch-up from not leasing enough space during the pandemic which has created pent-up demand as the return to office intensifies. While higher construction costs could delay potential new starts for our development team, a further pause in new supply will only accelerate the tightening of market fundamentals for our existing trophy portfolio. Lastly, we still maintain a relative cost of capital advantage over our public and private peers. This advantage combined with our balance sheet capacity from low leverage and strong liquidity creates optionality for Cousins. We are positioned to capitalize on compelling opportunities that might arise due to the market disruption. Importantly, our 2024 transaction activity highlights the creativity of our investment team and openness to a wide variety of opportunities, including debt, structured transactions, joint ventures, and property acquisitions. However, our core strategy remains the same. Invest in properties that already are or can be positioned into lifestyle office in our target Sunbelt markets. Near-term accretion is a priority. 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 are resetting so that they can be reimagined or demolished. This process is now clearly underway. At the same time, the lifestyle office market is improving. New construction is at historic lows, while leasing demand is improving. The market is rebalancing, and a shortage of premium space is not far off. We built Cousins to thrive during all parts of the economic cycle, and today we are in a highly advantageous position. We are in growing Sunbelt markets. Bank of America ranks our portfolios the highest quality among all office REITs. Our leverage is the lowest across the sector. The pricing on our unsecured bonds trade at the tightest spread to treasuries among all traditional office companies. In short, we have great access to capital and we see great opportunity. We 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.