Good day, and welcome to the Cousins Properties Fourth Quarter 2020 Conference Call. [Operator Instructions] Please note, that this event is being recorded. I would now like to turn the conference over to Pamela Roper. Please go ahead.

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, 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. In particular, there are significant risks and uncertainties related to the scope, severity and duration of the COVID-19 pandemic and the timing and strength of the recovery there from. 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 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. 2020 was an extraordinary year. The COVID-19 pandemic arrived swiftly and our lives changed almost overnight. As I said in May of last year, crises don’t build character, they reveal character. At Cousins, we value our employees, our customers and our communities. I’ve been so proud that our dedicated team has ably navigated the pandemic, while consistently providing our customers with the same excellent service they expect from us every day. In addition, Cousins gave back to our communities as we committed $900,000 from our nonprofit foundation to support organizations focused on COVID-19 relief and important social justice causes. Before addressing our long-term outlook, I want to provide a few highlights of our solid fourth quarter results. On the operations front, the teams delivered $0.68 per share in FFO with second generation cash rents of 8.9%. We leased 387,000 square feet and collected 99% of total rent, including 99% from our office customers. In addition, we took advantage of economic uncertainty and made several investments in the South End of Charlotte, including our acquisition of the RailYard’s for $201 million and two fabulous land sites, totaling 5.6 acres in aggregate. These significant investments in Charlotte will provide a solid foundation for growth in that dynamic city for years to come. Cousins was well-prepared to weather challenging times with a simple, yet compelling strategy that enabled us to operate effectively throughout the year. Let me highlight the core principles of our strategy. First, to build the premier urban Sunbelt office portfolio, second, to be disciplined about capital allocation and focus on new investments where our platform can add value, third and importantly, to have a best-in-class balance sheet, and finally to leverage our strong local operating platforms that take an entrepreneurial approach in our…

Thanks, Colin, and good morning. We reported solid fourth quarter operating results, delivering a constructive close to a year that presented every one of us with truly historic challenges to overcome. As I've done for the past couple of quarters, I will begin by updating you on general business conditions. First, an update on customer utilization within our 20 million-square-foot operating portfolio, utilization continues to track at an average of approximately 20% across the company, squarely in line with our reported levels last October. Given the widespread increase in COVID cases over the past couple of months, we've used steady utilization through this period as encouraging. Like last quarter, we sensed that utilization will not move materially higher until the second half of 2021, and should be highly dependent on vaccination efforts. Rent collections were consistent and strong again this quarter. We collected 98.8% of rent from all customers and 99.2% of rent from office customers in the fourth quarter. Collections are running at comparable levels so far in 2021 as well. We also continue to have very few ongoing rent deferrals, which are at this point largely limited to our retail customers. In the fourth quarter, rent deferral agreements represented just 0.3% of annualized contractual rents. And we're only 1.5% of contractual rents for all 2020. Now let's turn to operating results. Our total portfolio into the fourth quarter at 90.8% leased with our same property portfolio at a solid 92.7% leased. Total portfolio weighted-average occupancy held steady this quarter at 90.4% and the same property portfolio moved up to 92.4%. As Colin already referenced, we expect 2021 to be a transitional year for Cousins including occupancy. While only 8.5% of our annual contractual rents expire in 2021, our operating portfolio includes value-add investments with known 2021 pending vacancy,…

Thanks Richard. Good morning, everyone. I'll begin with my remarks by providing a brief overview of our quarterly financial results, including some detail on our Same Property performance, our development pipeline and our transaction activity, followed by a quick discussion of our balance sheet and dividend for closing my remarks with information on our outlook for 2021. Overall fourth quarter numbers were solid and it held up relatively well since the onset of the pandemic. FFL was $0.68 per share for the quarter and $2.78 per share for all of 2020. Same Property cash NOI growth remained positive during 2020 at 0.7%, and it was up a very solid 4.5%, when adjusting for COVID related rent deferrals and parking losses. Most impressive as all as Richard said earlier, was that we increased cash rents on expiring leases by over 13% during 2020. Focusing on our Same Property performance cash net operating income during the fourth quarter declined 3.3% compared to last year, driven by a 4% decline in revenues and a 5.2% decline in expenses. Adjusting for COVID related rent deferrals and parking losses, Same Property cash NOI actually increased 1.7% during the fourth quarter. Before moving past Same Property, I wanted to take a moment to highlight the outstanding work done by our property management teams with controlling expenses during the pandemic. For all of the 2020, Same Property operating expenses were down 6%, compared to 2019, and excluding property taxes, expenses were down almost 10%. These are terrific results during challenging times. Turning to our development efforts, one asset Domain 12 in Austin was moved off our development pipeline schedule during the fourth quarter, as economic occupancy at that property exceeded 90%. The remaining development pipeline represents a total Cousins investment of $450 million, across 1.5 million square…

[Operator Instructions] The first question comes from Blaine Heck with Wells Fargo. Please go ahead.

Great. Thanks. Good morning guys. As you mentioned in your prepared remarks, you guys got some good news this week with Microsoft's confirmation of plans to make Atlanta their East Coast hub. Maybe for Colin or Richard, can you just talk about that West Atlanta Bankhead and Quarry Park submarket and whether you'd guys would consider making any investments in that area that might benefit from Microsoft's activity?

Well, first let me just say good morning Blaine and we were thrilled to see the announcement from Microsoft yesterday. We had some idea that was in the works, and I think it's going to be terrific for the overall city including the West side of Midtown. If you step back and really look at Microsoft’s decision and what drove them to announce this large hub, because a testament to the city as a whole, and they certainly recognize the technology talent that is here in Atlanta, but they also recognize the diverse composition of the talent base in Atlanta. And so I think they want to align themselves with that and continue to grow their company here. And I hope, and I think we'll see other companies follow suit. So is that project unfolds out on the West side of town, we'll continue to watch that there were some other projects in our way as well. And we'll continue to monitor that if – and look for investment opportunities if we think it warrants.

All right, great. That's helpful color. Secondly, can you just discuss the interest in the Bank of America space in Charlotte? I think you guys had a little over 200,000 square feet of move outs thus far. And that's not one of the markets that Richard pointed out where you're seeing an uptick in inquiries. But I guess, based on any interests that you have there, do you have any sense of how long we should expect a return to kind of stabilization to take? And how many tenants do you envision that – taking that space?

Sure. I'd be happy to – this is Richard, I'd be happy to touch on that really quickly. I think you're right, I didn't call out Charlotte specifically as being one of the more noticeable upticks in inquiries and activity. But that's not to say that there isn't good early stage activity, I'd say that's actually been one of the most optimistic economic development areas. I think they're getting a lot of inbounds in Charlotte. And so, we do have – I'd say the pipeline right now for One South is a mix of smaller potential customers, whereas when you look at Atlanta where we've seen really good activity recently in Buckhead and Midtown, it's more of a mix of full floor to multi-floor user, so larger users. So again, Charlotte, we still feel really positive about the prospect of being able to create a lot of value at One South and depending on the pace of the economic recovery and vaccination efforts and these new kind of tire kicking efforts of inbounds into Charlotte and other in-town moves, the pace of that stabilization is anybody's guess, but we feel great about long-term rolling up rents there and creating a lot of value.

Blaine, I’d just add that as you look at Charlotte in uptown in particular that the large banks really drive that market and they've been I'd say more on the cautious side of reopening, their offices and I think that has perhaps impacted the pace of leasing activity kind of picking back up in Charlotte. But as Richard mentioned, as we think about that market over the longer-term fast forward a quarter or two, we have a lot of conviction in the market. And I think that certainly highlighted by our acquisition of the RailYard and really one or two terrific sites in the South end of Charlotte that will accommodate, we think some pretty interesting and attractive office and mixed use projects. So we're believers in the long-term for sure.

And one other thing I'd just quickly reiterate. I mentioned in my remarks, but Charlotte and uptown in particular does still have a phenomenal sub-10% vacancy rate. So the market overall and uptown in particular are going to be very well positioned, when things do pick up,

All right, that's helpful. And then lastly for me, with all the news around Parsley Energy, and they're being acquired by Pioneer and the associated layoffs. Have you guys had any recent discussions with Parsley about their space needs and maybe interest in subletting any additional space?

Great question, Blaine. And again, we're thrilled that we've now delivered 300 Colorado, it's a fantastic project. Again, I think very reflective of the office of the future. But obviously partially has been a long time customer of ours and great friends of ours, we’re purchased by Pioneer and that project has closed and they have put the entirety of their 300,000 square feet on the sublease market. But again, as we touched in our prepared remarks, Austin is seeing a significant inbound activity that has got interest in the market as a whole. But I think you're seeing some particular interest in the CBD and now in the Northwest. But we’re in a terrific situation. We’ve got a long-term lease with an investment grade customer. But we’ll continue to have dialogue with them. And if there are situations that you have – it’s a great outcome for Pioneer and a great outcome for Cousins, we’ll absolutely consider those. And I think we’re already seeing some of those opportunities come our way.

Great. Thank you, guys.

The next question comes from Dave Rodgers with Baird. Please go ahead.

Yes. Good morning, Richard, maybe I wanted to start with you. You’ve done a lot more leasing in terms of renewals in the quarter, as you mentioned. I guess, what are tenants primary concerns as you sit down with them today to talk about. I mean, is it really safety? Is it just locking in good space? Are they worried about kind of the configurations or is it really just kind of moving forward at a pace that’s more normalized? Because the economics certainly don’t reflect any amount of major concern, it doesn’t seem like. So kind of what are those conversations sound like?

It’s a really good question and you’re right. The economics that we used in our statistics in 2020 and kind of looking at our pipeline are not meaningfully different. COVID – in fact, in some ways they’ve approved. So I’d say that in our conversations with customers it really runs the gamut. I mean, one, our volume is still lower right, than pre-COVID. So there’s not nearly as much data to kind of dig into and try and spot trends. But what I think people are most concerned right now with configuration of space, with how they might change for the new normal, if you will. And I think around that, it tends to be – again, this is a gross generalization, but it tends to be, how do they potentially experiment with hoteling or hot desking. Is it even appropriate, it depends from company to company and their culture and their view of collaboration and how that works. There’s less of a focus, I would say, on implementing new technology around wellness and air quality. But I think that’s something on the front of mind and that will eventually come to fruition. But there’s not a hard pressing and hand wringing over that. So it’s really, at the end of the day, I think just like before COVID, every company is a little different with regard to their decision-making, how they view collaboration and culture, and that really more and what they do, frankly, as a business dictates more of how they think about their space than anything. And that really hasn’t changed in my opinion.

No real change in kind of tenants seeking to maybe get options to opt out a space at a certain point in time. I mean, in terms of, we’ll pay the economics, but maybe we can get out earlier or anything like that.

Sure, sure. Everybody certainly would like flexibility. Is it a – if we were at a 5, is it a 10? No. I mean, I think we’ve seen some more asks for flexibility, but it really hasn’t been meaningfully different.

And Dave, I’d just add, it’s Colin. When you look at our – the term on the leases that we’ve completed through COVID, it really is continued to average about 6.5 years and pretty consistent with our overall run rate. And I think we continue to see trends, accelerating in our discussions with customers is really a flight to higher quality properties, better amenitized properties, more experiential properties. And we think we’ve got a lot of product that meets that demand. But I think you’re seeing many customers take a little bit of a wait and see approach in terms of major reconfigurations to their space, to really, hopefully get through the next couple of quarters, get their teams back in the office and then position themselves to make any long-term changes.

That’s helpful. I appreciate all that color. Colin, maybe with you again. On the build to suit discussions, I mean, obviously you’ll continue to be opportunistic, I think even mentioned select speculative opportunities. But I guess, talk about what those discussions look like today. How they have evolved over the last three or four quarters in terms of build to suit or development oriented discussions for customers?

Yes, great question. And I think we’re now getting to the point in kind of the COVID experience where, it’s realistic to start having some of those conversations about actual transactions and opportunities. And as I look back to much of last year, there were a lot of discussions, but it might be a discussion with somebody who’s in California or Illinois, and they’re unable to actually get on a plane and come down and get on the ground. So it’s hard to execute those types of transactions over Zoom. As we can now hopefully with a successful vaccine rollout, look to the other side, I think there are going to be opportunities to identify and hopefully execute on some build to suit opportunities. And I think what’s interesting, as you look a lot of these large corporate relocations, maybe out of the West Coast or the Midwest into the Sunbelt, we are seeing an increase in desire for large companies to control their own space where they can control the environment and they can control the security. And our hope is that that will lead to – again, more build to suit opportunities. But we will, as I mentioned look at and evaluate some opportunities that have some speculative component that I think will be targeted and focused on particular markets – in some markets like The Domain.

Last on the activity at 100 Mill. Do you have any additional details on that? Richard, I think you mentioned in your script, but I’ve been here any details on that?

Sure. Those are lease, 10,000 square feet. I think the context there, it was a customer that was an existing customer or portfolio at Hayden Ferry. And we needed to accommodate and wanted to accommodate an expansion actually at Silicon Valley Bank there. And this customer was excited about the opportunity to move over to 100 Mill to accommodate that other expansion.

Okay. Great. Thank you.

Thanks, Dave.

The next question comes from Michael Lewis with Truist Securities. Please go ahead.

Thank you. Gregg, you mentioned the Burnett Plaza property up for sale. Should we expect that market anything else this year? I know, you’ve got the one asset in Houston, you’ve got now just a couple or a few to be interests. I don’t know if you’d be interested in either selling your stake in those or acquiring your partners into this?

Michael, thank you and good morning. As you know, our balance sheet has been kind of running where we want it for an extended period of time. So if we sell something, it won’t be to fix the balance sheet of a beat to a fund and a more attractive investment opportunity. And so I think sales will depend upon our ability to identify those investment opportunities.

Okay. My second question, New York urban obviously is not the same as Charlotte urban. But I thought it was interesting yesterday, Equity Residential talked about balancing its urban exposure with more sub-urban. Do you coming out of the pandemic feel, a need or desire to do that at all? And then the other thing the apartment guys are doing is targeting Denver and South Florida a little more I think, if apartments are going there, if those become more attractive potential office targets as well?

Both great questions, Michael, and it relates to urban versus suburban, I would wholeheartedly agree that there is a difference in suburban Charlotte and suburban New York. And I'd say that the biggest kind of structural difference is getting – let's say the structural challenges of getting from suburban New York into Manhattan versus Charlotte suburbs into uptown Charlotte. There's kind of far fewer barriers to move between those urban and suburban submarkets. And so, as we've looked at the market and we've studied the data in our markets and we just have not seen customers choosing to look to move outside of the urban core where they are well amenitized and in experiential can attract the type of young talent that they want to more commodity space in the suburbs. And really the data backs it up. CoStar put out a study not too long ago and looked at demand both in the urban markets and suburban markets nationally. And there really was no difference in 2020 relative to kind of prior pandemic year. So we're going to continue to focus on, again, the highest quality, most amenitized assets that really are going to attract the talent that growing and innovative companies want. As far as looking at other markets, we're always paying attention to kind of demand drivers and again, where growing companies are looking to locate. In many cases, they're following the talent and you are seeing the population move and talent move to places like South Florida and Denver. So those are clearly on our radar and we'll continue to watch that play out. There are other markets that fit that bill as well including Nashville and opportunities to expand for us in places like Raleigh-Durham or Dallas, where we've got a small presence today, but we hope to see that grow over time as well.

Okay. So I have just one more, Colin, you said something interesting about companies are not relocating to your markets to work-from-home. And that's interesting because maybe, right? So if everybody's going to work-from-home, maybe you move the headquarters from New York to San Francisco and let employees do whatever they want. So it would still be a net positive, but maybe it doesn't settle the work-from-home debate. And so does this new environment change the way we look at relocation activities? Should we able to a little careful about that because it may be attractive to move your headquarters there, whether you want to work-from-home or not. What are your thoughts on that?

Yes. Again, I would just look to the specific examples of kind of what's happening. And again, if you look at Oracle moving their corporate headquarters to Austin, right, they purchased hundreds of acres of land just outside of downtown on the way to the airport to build a campus. And again, I would point to the most recent announcement yesterday from Microsoft to build a large regional hub and that came with a purchase of 90 acres of land. And I think their intent is to put that into production and build offices along with things like affordable housing and retail and other enhancements to the community. So I think their actions are demonstrating that, that they're committed to creating an environment to bring their teams and their people together. Our sense is, as you look at some of the office debate over the past year. What you're hearing and what you're seeing are many employees who are in companies who are frustrated by the cost of living in certain markets which is leading to very challenging commutes in and out of the office. And I think what companies have recognized over the last year is that there are clearly benefits to having their team together, building their culture and collaborating and mentoring in-person. But perhaps the lesson of COVID is, you don't have to be singularly focused in one market like San Francisco or Seattle or New York, perhaps you can distribute that workforce across other markets in the country that offer a lot of the same amenities and quality of life. But perhaps come with shorter commutes and lower costs of living.

It makes sense. Thank you.

[Operator Instructions] The next question comes from Jamie Feldman with Bank of America. Please go ahead.

Great. Thanks, and good morning. Gregg, I was hoping to start with you on the guidance. Can you maybe get a little bit more color in terms of how you thought about the assumptions for the year? Can you maybe walk us through the occupancy by quarter and what you're assuming for some of the large lease-ups and the large vacancies that you guys have and whether there's any impact on 2021?

Jamie, good morning. Appreciate the question. Yes. That level of granularity around occupancy behind our guidance is something we didn't provide pre-COVID and with the uncertainty that COVID introduced we're not comfortable providing today. As the year progresses, we anticipate giving more details behind our guides. But we thought it was important right now to actually step up to the plate and provide a baseline for you. And I think that's what we've done with the guides that we've provided.

Jamie, as it relates to the blocks of space that we have. Again, we hope to make great progress leasing some of that space this year, but if you kind of work backwards, the Norfolk Southern space, it doesn't expire until the end of the year. And then as you look at the Anthem space at 3350, we've actually don't get that back until June of this year. So realistically, by the time, you're able to lease that space, going to build it out with tenant improvements and fit it out. I wouldn't see that being – either of those being an impact in 2021. We’re obviously, have some of the Bank of America space. Now back our hope is we can make some progress in that particular building over the course of the year. As I've mentioned earlier, Charlotte has been slightly slower in its kind of resumption of activity than perhaps Atlanta and Austin, Tampa and Dallas have. But we hope to make some progress. And I think hopefully that would be reflected in our numbers in Charlotte.

Okay. Maybe if I can ask it another way, when you thought about guidance, what are the biggest variables that really could swing numbers in either direction or generally? And then in terms of the Fort Worth sale is that included in your guidance?

So Jamie, it's Gregg again. Clearly, the biggest lever in 2021 to our guidance would be the pace of the recovery from the COVID pandemic. And there's light at the end of the tunnel. No doubt about it. But I think, there are a lot of question marks around how we get from here to there. And so that's going to be the biggest lever in terms of our earnings guidance and whether it goes up or down from here. In terms of the Burnett Plaza sale that is not included in our guidance. No transactions are included in our guidance and they're not included because they're not certain at this time. Again, we're in the midst of a COVID pandemic, typically we don't identify sales until they actually happen for this exact reason. So there's nothing unique about Burnett other than the fact that we're still in the midst of COVID in which enters a new level of uncertainty. So it's not in our numbers. If we follow through and if we're able to sell it in the first half of the year like we hope we will, we'll adjust our guides accordingly at that point.

Okay. I mean, do you – I know you'd said you would maybe find acquisitions if you get some sales and vice versa. Do you – I mean, do you think, I assume it would be diluted the numbers or do you think there's any way you can normalize that or neutralize that?

I'll jump in the counter. It all depends on what we do with the proceeds, right? And as Colin said, I mean, we're out there, aggressively looking for acquisition opportunities. We think we're going to find some hopefully. Don't know that we do have anybody at this – have any at this point, but we hope we will. And so when you look at specific solution from a specific disposition, it all revolves around what you do with the proceeds.

Yes. Yes, Jamie as I said in my prepared remarks, it's – obviously, we can't – we can't always perfectly time the sales and the buys. But – and that could create some short-term fluctuations in earnings. But we are over time very focused on continuing to upgrade the quality of the portfolio and a kind of newer vintage, buildings of the future that that do carry a lower CapEx profile. And I think we've proven ourselves to be, creative operators and investors to find those opportunities and make those investments. And so, as we look at the market today, we're hopeful just as we did in December with the RailYard, we're hopeful to continue to identify opportunities to deploy capital into acquisitions and potentially some development opportunities as well. And I think if we're successful doing that, put the quarter-to-quarter aside, I think we're – we feel very enthusiastic about our ability to drive kind of earnings growth and NAV growth over the long-term.

Okay. And then last for me Colin, you used the term office of the future experiential several times on this call, including that last answer. And what is the office of the future in your mind? It looks like the Charlotte building, you just bought is more low rise, high amenities, you've got land nearby, which means it's a little more campusy feeling or neighborhood feeling, but most of your portfolio is kind of infill towers. Do you see a shift here? When you use the term office of the future, what exactly does that mean?

Yes. No. I wouldn't characterize our portfolios is a bunch of towers. I think our average square footage is about 350,000 square feet. And I think as you look across our portfolio and kind of the office of the future, we've been – this isn't a trend to us that that's just emerged over the past year. We think this is a trend that's been going on for quite some time. And that's why we've positioned the company the way we have. And so we feel like we're where the puck is heading and that is product like the RailYard or what we're doing at the domain 300 Colorado, 100 Mill. We think the portfolio is very, very well positioned for that. And I think that building of the future it is more experiential. It has more amenities. It's got more areas, whether it's at the ground plane or outdoor plazas, rooftop space, fitness, wellness, amenities opportunities candidly where our customers, employees have places to get outside of their specific floor and be together and collaborate and create an environment where they can both kind of work and play. And I think we see more of that coming and we've been hard at work for years to position ourselves at the intersection of that trend, along with this migration that continues to accelerate.

Okay. Sorry. And just one more. What do you think the mark-to-market looks like for your 2021 expiration?

Well, Jamie that's again, our crystal ball is in the midst of a pandemic is perhaps not as clear as it is in a normalized environment, but we've always felt like the portfolio was with 8% to 10% below market. And certainly quarter-to-quarter what we deliver is entirely incumbent upon what the particular mix of leasing is in any quarter. But as Richard alluded to earlier, we've been successful holding our face rents. And we certainly – we've seen some pressure on our concessions, but we've seen face rents hold up. But at 8% to 10% kind of pre-pandemic, even if there is some erosion and rental rate we think we've got some attractive margin there too. We're cautiously optimistic that we can continue to deliver a positive mark to markets.

Okay. Thank you.

Thank you, Jamie.

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

I want to thank you all for joining us this morning and your continued interest in Cousins Properties. I want to once again thank all of my teammates on the phone for your continued hard work and support of the company and flexibility. And we'll look forward to seeing many of you investors at some of the upcoming investor conferences over the next month. Thank you all, and have a great weekend. Stay safe.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.