Good day, and welcome to the Cousins Properties Incorporated Fourth Quarter Earnings Conference Call. All participants will have – will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.I would like to turn the conference over to Pam Roper, General Counsel. 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 Gregg Adzema, our Chief Financial Officer.The press release and supplemental package were distributed yesterday afternoon, as well as furnished on Form 8-K. 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.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, 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 the 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. 2019 was an extraordinarily productive and busy year for Cousins. We transformed the company with the TIER REIT merger, and we now own an unmatched portfolio of trophy office properties in the premier submarkets of Atlanta, Austin, Charlotte, Dallas, Tampa and Phoenix as a result.Throughout the year, we also announced a series of compelling transactions, including the Norfolk Southern headquarters project, the value-add acquisitions of 1200 Peachtree and Terminus and the Truist headquarters leased at Hearst Tower. The team’s hard work is driving strong financial results, as highlighted in our fourth quarter earnings release.We delivered $0.73 per share in FFO before transaction costs. Operationally, we’ve leased 562,000 square feet and reported cash, same-property NOI growth of 6% and cash second-generation leasing spreads of 12.6%. These metrics are among the best in the office sector. Overall, we exceeded our expectations aside from an increase in G&A expenses directly attributable to our strong share price performance during the quarter.As we begin 2020, the economy remains strong and businesses continue to add jobs. Office fundamentals remain healthy, with steady demand for new space and measured increases in new supply. Cousins is exceptionally well-positioned to gain momentum from these trends and to create value for our shareholders.I will highlight why? First, our Sunbelt markets are among the strongest in the United States. Recent census data highlights a meaningful migration from the Northeast, Midwest and California to the Sunbelt. This significant population shift is translating into strong office-using employment growth in our markets.For Baird, office employment growth in our core market has exceeded the national average by 100 basis points. Boosted by these tailwinds, Austin, Charlotte, Tampa, Atlanta and Phoenix, are all among the top markets across the country with strongest rent growth according to CoStar.Second, we own…

Thanks, Colin. The 2019 operating year at Cousins ended on a strong note. Our team completed 562,000 square feet of leasing in the fourth quarter, bringing our total annual leasing activity to over 3 million square feet. This is the highest annual leasing activity in our company’s history as a dedicated office owner.While our 2019 activity included two notably large and unique leases, both with Truist and Charlotte and Norfolk Southern and Atlanta, the balance of our activity during the year was economically solid and broad-based across all of our core markets. Rent growth was especially strong in the fourth quarter, with the second-generation net rents increasing 25.5% on a GAAP basis and 12.6% on a cash basis.Our total Office portfolio ended the quarter at a solid 93.6% leased, with weighted average occupancy of 90.1%, both essentially in line with the prior quarter. The same-property portfolio percent leased and weighted average occupancy were both 1% higher at 94.6% and 91.1%, respectively. The current fundamentals in all our core markets remain positive.Fourth quarter and full-year Class A net absorption were positive across the Board with Charlotte and Phoenix posting record or near record absorption for the full-year. Occupancy and rent growth in our markets continue to outperform national averages and are largely consistent with what we experienced during the first three quarters of 2019. The same holds true for job growth.According to recent Citi research, year-over-year employment growth in each of Cousins’ core markets was well ahead of the U.S. average of 1.4%. Tampa and Atlanta posted favorable annual employment growth of 2.2% and 2.3%, respectively, while our other Cousins’ core markets experienced even higher employment growth between 2.9% and 3.4%.According to CBRE, global centers of technology like those in business-friendly Texas and high-growth Southeast metros are once again expected to…

Thanks, Richard. Good morning, everyone. I’ll begin my remarks by providing an overview of our financial results, including same-property performance, followed by a discussion of our balance sheet before closing my remarks with revised 2020 earnings guidance.As you can tell from Colin and Richard’s comments, our fourth quarter results were outstanding on many fronts. FFO was $0.73 per share, excluding TIER transaction costs, which represents a 9% increase over last year. Beyond FFO, the important operating metrics that both you and we focus on were also very strong. Leasing velocity was solid. Second-generation leasing spreads were positive, and same-property year-over-year cash NOI increased for the 32nd consecutive quarter.Included in this quarter’s results are three items, I’d like to highlight before providing some color on our same-property portfolio. First, our general and administrative expenses during the fourth quarter were $11 million and they were $37 million for the full-year, significantly higher than our guidance for the full-year year of $33 million.Our recent strong share price performance clearly a positive development is behind this variance. The other components of G&A were in line with our forecast. This isn’t the first time we’ve reported a large variance in our G&A expenses.This volatility is driven by the fact that our long-term incentive compensation program is heavily weighted towards performance-based RSUs, which ensures management’s interests are aligned with our shareholders. These RSUs have historically settled in cash and must be mark-to-market each quarter.Beginning with the units granted this year, these performance-based RSUs will now settle in stock, which will significantly reduce their quarter-to-quarter impact on G&A. This change will put us in line with our office peers who also use RSUs.We’re leaving all previously issued RSUs unchanged, and since our performance-based RSUs cliffed vest after three years, it’ll take a couple of years for the…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jamie Feldman from Bank of America Merrill Lynch. Please go ahead.

Great. Thank you. I want to go back to your comments on some of the move-outs, BofA Plaza, the Peachtree buildings. Can you just talk about leasing prospects for those buildings?And then, Colin, when you started talking, you said a couple of times that, Cousins is poised for growth here and NAV accretion. But how should we think about the drag on earnings growth for some of those spaces, as we think about next year?

Well, Jamie, it – good morning, and the – again, as we look at those move-outs, we continue to be extremely optimistic about our prospects to backfill that space. And like other properties in our portfolio, they are – the Bank of America project in Uptown Charlotte, the 1200 Peachtree building in Midtown and 3350 building, where Anthem will be moving out next year, are all an absolutely terrific submarkets.They’re extraordinarily well located all in close proximity to mass transit. And we’ve discussed the overall trends in our markets and really being boosted by the – this migration that we’ve seen from the Northeast to the Southeast. So we feel very good about the prospects to backfill that space like we’ve done on others at Terminus and like we did at Hearst Tower with Truist.So as we get closer to actually having that space back, I think, we’ve got a tremendous opportunity to backfill that and stabilize those properties. Kind of a bigger picture, as you think about earnings drag, as I mentioned in my remarks, we’re obviously focused on both driving and creating FFO growth and NAV growth, and we think that we’re doing that.And if you really look at the Cousins’ strategy, right, it’s kind of multifaceted, where we’ve got our existing portfolio, which continues to perform extraordinarily well and deliver growth. At the same time, we have got this fabulous development pipeline that will deliver ultimately over $70 million of stabilized NOI, as we get into 2022, which will more than offset any dilution from downtime associated with these particular customers.And so, as we look at those 1200 Peachtree, as an example, we bought that, because it’s in a great location and we bought it at a 50% discount to replacement costs. I think, if we look at our alternatives, knowing that they were moving out, we could have bought a stabilized asset at a much higher value and a much lower yield.But we think this is a terrific opportunity for our team to do what it does best, which is to reposition and stabilize a fantastic asset, will create a lot of value. In doing so, we’ll also create long-term earnings growth at 1200. But, again, I think this development pipeline that we’ve got is so powerful and really affords us some of that additional NOI to offset any move-outs that we might have.

Okay. That’s helpful. And then, I guess, for BofA, you’re saying, you’re not even – you’re not marketing it yet, even though you know, they’re moving out. Is that the right way to read what you said?

Yes. Jamie, this is Richard. No, we’re absolutely already marketing it. The market in Charlotte has been aware of this move-out for quite sometime. So it’s very well-known. And I would say, obviously, this one is the earliest of the three that we’ve kind of talked about here today already, with the bulk of that coming back at the end of 2020.And we’re already getting some good looks and inquiries from both large users that would take multiple floors, but also just more kind of bread and butter prospects that would take partial floors. So we’re all over it. The team is actively working on leasing that space up today.

And how would you compare the total pipeline of demand versus the space you have to lease in terms of magnitude, in terms of size?

Jamie, it – there’s a lot of different, as Richard said, users that, both big and small, some of those larger users are looking at multiple markets. So sometimes that can be hard to quantify. But, again, if you just step back and look at the activity in Charlotte and particularly Uptown over the last kind of 12, 24 months, obviously, we’ve talked about the Truist leases, we did over 500,000 square feet.Honeywell has announced that they’re moving their corporate headquarters from New Jersey to Uptown Charlotte. Lowe’s has just announced that they’re going to do a sizable transaction, as they move from the suburbs to more than urban orientation. And I think if we have the space at Bank of America today, that we would have absolutely been in the mix for some of those opportunities. So I think that, again, gives us great confidence, as we look forward to, over the next year or two, as we get that space back to have similar opportunities.

Okay. And then last for me. If you look at Page 18 of the supplemental, your NOI is 33% Atlanta, 23% Austin, 17% Charlotte. I mean, how do you think about the mix of those two markets, you just think of geographic diversity going forward?

Yes. Jamie, we’ve been very intentional to build some geographic diversification across the best markets of the Sunbelt. And if you went back several years ago, we were probably a bit over – overrepresented in Atlanta at some points over 50%. And so we have, I think, created really attractive diversification today.And as you look across the Sunbelt, in terms of markets to have a meaningful investment, Atlanta, Austin, and Charlotte would be all up near the top of the list. And, in fact, I think, if you look at kind of ULI’s recent rankings of most attractive markets in the office sector in 2020, all three of those fare very well.So we’re – we absolutely like our position and the size and scale that we’ve got in this market. At the same time, we’ll continue to look for opportunities to grow in our other markets.And as we discussed earlier, we announced the startup of a 100 Mill in the Tempe submarket of Phoenix, and we’ve got a terrific site to build the fifth building at –in Tampa Corporate Center and we’ve got a couple of really terrific sites in Dallas. And so we’ll continue to grow in our other markets. But to have anchor positions, the quality that we do in Austin, Atlanta and Charlotte, I think, it’s a great position to be in.

Okay. But you don’t feel the need to shed any assets in those markets to bring those numbers down?

And we do not.

Okay. All right. Great. Thank you.

Thank you, Jamie.

The next question comes from Anthony Paolone from JPMorgan. Please go ahead.

Yes, thanks. The relocation trend has been underway for a while in your markets, but it just seems like every day, there’s another announcement. Can you just talk about anything that that’s surprising you, or that’s different as you talk to users as it relates to either submarket preferences, type of space, price sensitivity or otherwise?

Sure, and good morning, Tony. The – we agree with you. I think the – that trend is continuing, if anything, it’s accelerating. And as we talked to potential customers, CEOs at these companies as to what’s driving their decision, I would – it’s obvious that the kind of lower cost of doing business, lower taxes, get a less regulation and then Sunbelt are obvious reasons.At the same time, I think, one thing that’s been a little bit of a surprise in the feedback that we’ve received is, these companies recognize and appreciate that the best submarkets in the Sunbelt have rapidly urbanized. And there’s a very vibrant community of mix of uses.And as these submarkets, like Midtown Atlanta and Downtown Austin has continued to grow, I think, CEOs recognize that these are highly attractive destinations for their employees that can offer similar lifestyle that you might find in Manhattan or San Francisco.And so we think that will continue to accelerate. And as companies make the move, I think, it gives other companies the confidence to do that, as well as they see the success that companies like Amazon and NCR and others are having in their recruiting.So we think that trend will continue, play very favorably to our portfolio. I think they have tended to focus on higher quality space, where we oftentimes discuss the flight to quality that’s taking place. And as you look at the statistics, it certainly proves that out that the Class A properties are faring better from a demand. And I think, again, it comes back to companies are focusing on recruiting and retaining talent. And it recognize that overall cost is outweighing the specific real estate cost expense.

Okay. All right. Thanks for that. Another question on Domain 9, you mentioned potentially that being up on deck next. What’s the gating factor for starting that? Like would you do it on spec, or do you need a pre-lease? What’s the decision there?

Yes. Tony, it – as it relates to development, we’re project-by-project in terms of our decision to move forward with speculative space, or pre-lease. As it relates to Domain 9, our team has appropriately taken sometime since closing the merger to get our arms around the Domain, understand the design and construction of that project, I think, they’ve done a really nice job of taking the original design and adding a few elements as it relates to amenities that we think will be attractive to users.So we’re excited about the project. And I think if you look at the overall demand in the Domain and how tight the market is, I think, we’re – we’ve got a lot of confidence and are bullish to move forward with that project. Hopefully, we’ll have some good news to share in the not too distant future.

Okay. Thank you.

The next question comes from Blaine Heck from Wells Fargo. Please go ahead.

Hey, thanks. Good morning. Just to follow-up on the shadow development pipeline. I think, on previous calls or in previous conversations, Colin, you’ve talked about being happy with your land holdings in most markets that you’ve noticed that you’re a little light or actually I think out of the land in Charlotte, just given how hot that market is right now. I wanted to see if there was any update on your search for land? And then any commentary you can give on whether you’re just looking for that land and infill submarkets, or would you look in some submarkets that might be more kind of up and coming?

Yes. It – we continue to believe that Cousins that it’s important for us to have a very attractive land bank to position ourselves when those next customers show up, looking for a new trophy space. And so, as we look forward, Charlotte, as I mentioned in the past, is clearly a market that now that we’ve delivered the dimensional place project. We do need to acquire a site to position ourselves and our team is actively working that on multiple fronts, multiple pieces of land.And I think we’re very encouraged that in the relatively near future, we’ll be able to position ourselves the right way in Charlotte. I do think that, as we look for land, it will, I think, continue to be in the type of submarkets that we’re invested today. And those are the urban and well-amenitized submarkets.In Charlotte that’s absolutely Uptown and the South end. But there are also some other, as you mentioned, up and coming submarkets that, that have got really attractive amenities. And so I think we’ll look for opportunities in those type of submarkets as well.

All right. That’s helpful. And then just second one for me, maybe for Richard or you, Colin. It looked as though the concession ratio or your leasing costs per square foot as a percentage of the rent per square foot on the leases, you guys did this quarter increased quite a bit.Obviously, that’s going to bounce around from quarter-to-quarter based on the mix. But I wanted to see whether there were any specific leases that could drove that increase? And just in general, can you comment on any recent movement you’re seeing in your markets with respect to TIs or the free rent needed to attract the tenant?

Yes. That’s a great question. And you’re right that I did pop up as a percent of our rents in the fourth quarter. And your point about trying to compare sequentially quarter-to-quarter is difficult because of the mix, because of the geography of where the leasing is taking place. But it’s a high level – we – across the board, we do still see pressure and construction costs.So that is a factor and something we’ve talked about before and it is continuing. So we’re continuing to work through that. Generally, over time, we found that we’ve been able to address that through whether it’s trading it off with free rent or getting higher rates, so that it’s kind of held our net effective rents fairly stable, if not, continuing to increase. So I think over time, our hope is that, that will be – still be the case.As far as specifically in the fourth quarter, a couple of things. I know that we had a little bit of first-gen leasing in our lease mix, which tends to obviously have higher TIs as its shelf space. And then there were just a couple of kind of specific situations that not to get into specific deal economics. And – but they were unique that drove TI is a little higher, for instance, a couple of spaces that were dated enough that we needed to go ahead and demo as part of a new build out, which is always tends to drive costs up a little bit.So, at this point, I would say, it’s not something that we call a trend that, again, we’re seeing that pressure and construction costs in multiple areas of our business. And we continue to feel that we’re going to be able to counterbalance that over time.

Great. That’s helpful. And just remind me, is the pre-leasing on 100 Mill included in those numbers?

In which numbers?

[Multiple Speakers]

Yes. Those were not in the fourth quarter.

Yes. Those were…

Okay.

That was all done this year in the first quarter.

Got it. Thanks, guys.

The next call comes from John Guinee from Stifel. Please go ahead.

Great. Thank you very much. A big picture question, Gateway Village, BofA is purchasing, Truist is purchased in Hearst Tower. Do you have thoughts on when these big banks want to own the asset and when they want to lease the asset?

John, the – and good morning. They certainly could give you better feedback and visibility specifically than we could. But what we noticed is that and I think it’s highlighted in the Truist transaction that the very largest banks called the top five, top 10 banks absolutely want to own their corporate headquarters.Outside of their corporate headquarters, I think, there has been a little bit less sensitivity around that. And I think it’s very specific to what the particular business unit group is and how much flexibility that they want. I think the Gateway Village purchased by our partner in that project, I think, was really driven to what the underlying use has evolved to at Gateway Village. It is very much a mission-critical facility for them at this point, a significant portion of it is data center.And I think from a security standpoint, it’s important for them to control that space. And I think, ultimately, that drove their decision and obviously, there – there’s a 17% effectively cost of capital that I think they realized, it’s time for them to move forward and control that.

It looks to me like it’s about 14 cap, the Gateway Village. Your 50% interest has been bought at about a 14 cap. Does that make sense?

Hey, John, it’s Greg. It was a highly structured deal. And the purchase price of $52.2 million, it really has nothing to do with cap rates or appraisals or market values at all. It has 100% to do with just returning a 17% IRR on our invested capital. So although, we are giving up about $7 million, $7.5 million in GAAP NOI on an annual basis, that’s not how it was priced, and I’m not sure that’s really a relevant way to look at it.

Oh, I understand. It’s just priced that way for – it’s important to understand for people who do NAVs. Last question. Tempe, about $530 a foot, can you describe what you’re building for $530 a foot structured parking, below grade parking, extra parking, big land basis. How do you get up to over $500 in Tempe?

Yes. Sure, John. And just actually going back to your last question, one thing that’s important to note as it relates to Gateway, and as Gregg mentioned, we’ll lose some NOI from that. But at the same time, even with that disposition, we were still able to raise our 2020 guidance, which I think is – which is really powerful.Moving over to Tempe, you’re right, the cost per square foot, if that project is over $500 a foot, which is certainly a bigger number, as you compare it to similar size projects at the Domain. And I think, in particular, what’s driving that cost at the 100 Mill project is really twofold. One, it’s a smaller, tighter labor market and that drove the cost of some of those trades.And then the – that particular project, we are building some underground parking, and that is really required by a height restriction in Tempe, given its proximity to the commercial airport. But I think importantly, the – even with the higher cost per square foot, our customers were ultimately comfortable with the rent that justifies that cost and we’ll deliver that project at very similar returns to the other parts of our development pipeline.

Okay. And then my recollection is, you’re still showing Domain at the TIER basis in the DART and their development. But this one, I think, you’re – are you showing at fair market value for the DART or what you pay to acquire the DART with the TIER merger?

You’re referencing 100 Mill?

Yes.

So 100 Mill is a legacy Cousins project.

Oh, I forgot. Sorry, I can correct it.

Yes.

I can correct it. Great. All right. Thanks a lot.

Thank you, John.

All right. Enjoy.

[Operator Instructions] The next question comes from Dave Rodgers from Baird. Please go ahead.

Hey, good morning. Collins. Just – I heard your comments earlier about FFO and how the development will offset the move-out. But I guess, maybe turning to some of the assets sales that you might consider to be non-core BriarLake, Burnett Plaza and markets or assets you don’t want to own. How do you think about balancing the dilution of having to kind of sell those versus the move-outs of the developments and the timing and not keeping your faith kind of tied to some of those non-core assets?

Well, Dave, we have worked really hard to get the balance sheet in a terrific position. So, where we sit today, we really feel no pressure to make any additional dispositions to fund the current development pipeline or, again, the recent purchase of our partners interest at Terminus.I think over time, as we identify compelling new investment opportunities to expand the development pipeline or other strategic property acquisitions, we can always look to non-core assets as a source of capital to fund those. And we’ll evaluate those decisions as those new investment opportunities come along.In the meantime, the assets that you referenced, there continues to be some opportunity to drive value at BriarLake and some leasing to do. So we feel no pressure. There’s no immediate need to just sell. But, again, I’m confident over time, our team will do a terrific job identifying new opportunities, and so that over time could likely lead to sales to match fund new investments.

Thanks for that. I mean, with regard to 100 Mill, can you talk about the joint venture? I don’t remember how that joint venture came about, if they had some ownership in the land and kind of why you move forward in the joint venture there?

It – sure, Dave. It’s a 90/10 structure, and we do have a page in our supplement that outlines kind of the basic structure of those deals. It’s very similar to 100 Mils as to our structure with Hines at Avalon. And really, the rationale behind it. Hines has a terrific team. We’ve had a great experience working with them at Avalon. And as we look at executing the project in Tempe, we’ve got a terrific team on the ground at – in Tempe.We do not have any development or construction personnel on the ground and Hines does. And so we felt like bringing the two organizations together with our leasing team there and our operations team and Will Creyer who is our Managing, I think, it’s a really good relationship to leverage Hines local development and construction expertise.

Okay. Two more quick ones for me. What made the North Point land non-core for you guys, because you obviously like that asset quite a bit?And then the last question would just be, maybe for Richard on NASCAR, now that they’re kind of under a year in terms of exploration? Have you given any updates on their potential fee?

The land at North Point that you referenced is a legacy holding for quite sometime. And it really is a suburban piece of property that, I think over time, I wouldn’t be surprised if the new owner that is – ultimately delivers something outside of office. It is probably the highest and best use. So for our core business today, it just didn’t make sense for us to continue to own that.

Yes. And in terms of answering your question on NASCAR, it is a little over a year out and maybe pushing year-and-a-half, but we’re already talking to them, as you might imagine, and engaged in discussions. It’s still a little early for them, though.I’d say that just looking at that situation, in general, it’s a great building. And this does represent NASCAR’s headquarters. The building is named NASCAR Plaza and the Hall of Fame is connected to it. So we feel good that situation continue to evolve in a positive way.

Great. Thank you, both.

This concludes our question-and-answer session. I would like to turn the conference back over to Colin Connolly for any closing remarks.

Thank you, you all for your time today and participating in Cousins fourth quarter earnings call. The team is excited and energized for a productive 2020. Our phone is – we’re always available over the phone, if you have questions, and we’ll look forward to seeing many of you all over the course of the year. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.