Good day, and welcome to the Cousins Properties First Quarter Conference Call [Operator Instructions]. Please note that this event is being recorded. I would like to turn the conference over to Ms. 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 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 Web site, www.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 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 solid first quarter at Cousins and a productive start to 2023. On the earnings front, the team delivered $0.65 per share in FFO and same property net operating income increased 4.9% on a cash basis. We leased 258,000 square feet during the quarter with a 6.1% cash rent roll-up. New leases and expansions totaled 159,000 square feet. And our renewals were modest, as we have minimal near term lease expirations. Overall, these are positive results in a tough economy. Over 10 years ago, Cousins set out to build the premier Sun Belt Trophy REIT, while maintaining a fortress balance sheet. Our unique and compelling strategy has been supported by two powerful secular trends, a migration to the Sun Belt and the flight to quality. We aggressively positioned the company around these tailwinds. In just the last five years, we sold approximately $1.3 billion of predominantly older vintage properties and reinvested the proceeds in trophy acquisitions and attractive new developments. In addition, we completed a transformational merger with TIER REIT that expanded the portfolio and enhanced our geographic diversification. As a result, Cousins now owns a premier portfolio located in the best submarkets across the Sun Belt. Importantly, our portfolio is among the newest across the office sector with among the lowest near term lease expirations. In addition, our balance sheet is among the strongest in the office sector with a net debt-to-EBITDA at 5.1 times with ample liquidity and no significant debt maturities until July of 2025. Now I'll touch on the macro environment. First, to fight inflation, the Federal Reserve and other central banks around the world have rapidly raised interest rates to slow economic growth. Financial conditions have tightened. The real estate capital markets have dislocated. Companies are…

Thanks, Colin. Good morning, everyone. Our operations team, once again, delivered solid quarterly results. As Colin mentioned, companies are now broadly bringing employees back to the office for three or more days per week. We are seeing the impact of this most noticeably in the 17% and 6% increases in our first quarter parking revenue on a year-over-year and sequential basis, respectively. Before reviewing results, I want to take a moment to provide more color on the bankruptcy of SVB Financial Group, the entity on our 205,000 square foot lease at Hayden Ferry in Phoenix that expires in January of 2026. That entity is a parent company that no longer owns SVB Bank but still owns other nonbank subsidiaries. However, the actual user of our space was SVB Bank, which is now owned by First Citizens Bank. We are in contact with SVB Financial Group, the legacy SVB Bank and First Citizens. With that said, it is still too early in the process to have a clear view of the outcome with our lease. To the extent we do get space back from SVB, Hayden Ferry is an iconic office project in Phoenix that, even before this bankruptcy, had a significant reinvestment project planned, and SVB's in-place rent is below market. Further, we have already received multiple inquiries from potential new customers about whether SVB space will come available. On to operating results. First, there were no portfolio composition changes in the first quarter. Our total office portfolio weighted average occupancy and end-of-period lease percentages were 87.2% and 90.8%, respectively, with occupancy up slightly relative to last quarter. In the first quarter, we executed 29 office leases totaling 258,000 square feet with a weighted average lease term of seven years. The lighter volume was in line with our expectations given…

Thanks, Richard, and good morning, everyone. I'll begin my remarks by providing a brief overview of our results as well as some details on our same property performance. Then I'll move on to our capital markets activity and our development pipeline, followed by a quick discussion of our balance sheet, before closing my remarks with an update to our earnings outlook for 2023. Overall, as Colin stated upfront, our first quarter earnings were solid and the economics behind them were encouraging. Second generation leasing spreads were up and same property year-over-year cash NOI was positive. Focusing on same property performance for a moment, we added five buildings to our same property pool during the first quarter, and that pool now comprises over 92% of our total NOI. The new properties have an average age of only three and half years and average gross rents of almost $60 per square foot. With these additions, we continue to improve the quality of our core office portfolio. Looking at the numbers. Same property GAAP NOI increased 5.3% and cash NOI increased 4.9% during the first quarter compared to last year. This continues a string of improvements that began in early 2022 with the most recent quarterly gains largely driven by occupancy at Buckhead Plaza and Domain 2 as well as higher parking revenues. Turning to our capital markets activity. Subsequent to quarter end, we executed a loan application for our MOB in Midtown Atlanta. This is the refinancing of an asset that we own in a 50-50 joint venture with Emory University. The new debt will increase total loan proceeds from $62 million to $83 million and lock in a fixed 4.8% coupon for nine years. We anticipate closing prior to the maturity of the existing debt, which is on June 1st. This…

[Operator Instructions] First question will be from Blaine Heck of Wells Fargo.

Colin, we talked about this a lot in recent conversations, but there's obviously been a lot of focus on debt maturities in the office sector and the wave of maturities that we're facing over the next few years. Just wanted to get your view on how this all plays out, are you expecting a significant amount of force or distressed transactions to emerge or not? And what's that mean for asset pricing in the office sector and again, potential opportunities for you guys to invest?

I think it's still a bit premature to see how this ultimately plays out. You're right, there are significant maturities in over the next three years and particularly over the next kind of 12 to 24 months. And I think in certain instances, you're going to see banks working with existing borrowers to try to find kind of orderly resolutions that I think a big trigger kind of inflection point are going to be assets that do need a significant amount of new capital and where that new capital comes from. And I think that's going to create opportunities for folks like Cousins and others. That being said, as you look across the Sun Belt Trophy landscape, those properties today are, again, the fundamentals in kind of premier Sun Belt properties is actually fairly solid and many of those buildings do not have significant amount of leverage. But I think ultimately, as the overall market kind of works itself out with significant increase in interest rates, asset prices have clearly moved. And even in the event that we don't see significant distress with the existing assets, we do think we're going to see some investors that have got kind of portfolio issues elsewhere and look to meet the market and move assets. And again, I think that will be another source of opportunity for us. And then lastly, I think we'll see it most acutely from a debt maturity perspective kind of interesting opportunities for Cousins will be some of the new supply and construction loans for kind of nonstabilized assets. And I think that will -- we're starting to see some of that activity happen now and certainly over the next 12 months as those loans mature. Those loans will need to be rebalanced and there'll be new capital that's required to lease those buildings.

Second question, just on same store NOI. Results were very strong this quarter, almost 5%. I know you guys still aren’t giving guidance, but can you give us any color on how we should think about that metric trending throughout the rest of the year or even some drivers that could push that number one way or the other as we think about the second, third and fourth quarters?

So it was a solid number for the first quarter. And in terms of kind of what's moving it, I mean, you've seen some good movements on both revenues and expenses. On the expense side, I mean, there are some pressures. There are some pressures on taxes. Municipalities are starting to raise assessments. And we appeal those like everybody else does but there's definitely some pressure on taxes. There's also some pressures from just general inflation, particularly on the labor side. So you'll see that continue to push through the balance of the year. And then finally, on the expense side, as we see companies bring their employees back to the office, net-net, that's very positive in many ways, not the least of which is the parking revenues we've talked about and which have kind of led to our increased guidance. But you will see some pressure on some operating expenses, cleaning utilities, because you just have more people on it.

The next question will be from Mr. Anthony Powell.

Just a question on Neuhoff, with the 200,000 square feet of leases in various stages of negotiation. What's the likely, I guess, path for income recognition from that project next year as you kind of ramp up? And how does that look relative to what you're expecting maybe six months or a year ago?

As Richard alluded to, we are now starting to see activity pick up considerably at Neuhoff, and we're very excited about where we stand. And I think as we look at income recognition, the 50,000 or so square feet that we're in lease negotiations with, I think that those will have the possibility to kick in, in the early part of next year. And then again, we're in process with another 150,000 square feet. We'll not make all of those but we hope to get more than our fair share. And I think those will, from a commencement perspective or anywhere from kind of the middle of 2024, to, in some cases, even kind of end of the year or at the very beginning of 2025. Overall, from the project, we continue to be on budget, on time. I think if there's one kind of aspect that as we look backwards that maybe we underappreciated was the size of the project and the adaptive reuse component of the project. It maybe a little bit more challenging for folks to get their arms around and understand it and really experience what Neuhoff is. Now that we're getting closer to completing the project and it's taking shape, the response and the receptivity of this project in Nashville has been incredible. And so we're very excited about where we are. I think the lease-up might take us just a touch longer, but we feel very good about where the economics stand. And I think it's going to be a terrific outcome for Cousins.

And one more. I guess we're a few quarters into the tech layoffs. And I remember when they started, there was a debate about whether these layoffs would impact more of the headquarters in the West Coast or some of the other offices in the Sun Belt or if they'll be spread out. I guess maybe hard for you to tell. But is there a way for you to monitor if similar layoffs from Amazon, Meta and whatnot have impacted your portfolio more than others or less than others, or just maybe a broad overview there would be great?

It's hard to be very specific because those aren't numbers that they disclose publicly. But I can tell you, we talk to our customers all the time. And again, I'll share with you the consistent feedback that we get from some of those large tech companies is that they made a strategic decision to grow in markets like Austin and Atlanta, Nashville and others. And that was really based on a long term objective to distribute their workforce more broadly across the country. And I think in particular, they've identified some cities that have really grown up and urbanized over the last 10 plus years where they could attract kind of the best and the brightest and high quality talent that's excited to live in those environments at a much cheaper cost. And so we have not received any indication that they're looking to kind of unwind that strategic objective. If anything, our view over time that while there could be a short pause that, that will certainly continue and could grow.

The next question will be from Jay [Poskitt] of Evercore.

Can we just touch on kind of your expectations for occupancy growth throughout the year? I know that on the previous call, you kind of talked for flat occupancy in the beginning of the year and then a potential ramp in the back just based on what leasing conditions might be. I'm just kind of curious how that view has changed and what might changed the macro environment, maybe the lease renewal in the fourth quarter? Just any color on that would be helpful.

Yes, I'd say short answer is our expectations really have not changed relative to last quarter. So we still continue to feel like with the kind of minimal expirations during the year that we have combined with leases that have not yet commenced, but well during the year. We have a reasonable path to just incrementally build hopefully, occupancy like we did this quarter throughout the end of the year.

And then just one question as well. Can you provide an update on the bucket of the signed leases not yet commenced? I know last quarter you said that had a weighted average commencement of the second quarter. So any color on that would be helpful.

So that number sitting here today is now about 480,000 square feet, but it's still got a commencement in the second quarter on average.

Next question will be from John Kim of BMO Capital.

I believe, Richard, you mentioned 700,000 square feet of leasing in the pipeline in negotiations. I was wondering if you could remind us what your typical closing rate is on leases and negotiation? And any market color you can provide? I know 50,000 of it is in Nashville, but just wanted to know if what the proportion was in other markets.

With regard to the closing rate, it's really high. I mean it's 95% plus. Usually, when we have a lease that goes into documentation and legal, it's a solid transaction for us. So really high conversion rate there. Timing can vary but the conversion rate is good. With regard to just the kind of distribution of activity, Atlanta continues to be really strong. It has been for a while now. But again, the activity that we're seeing in our late stage pipeline is really compelling in every single market. So it's very broad based.

And what do you attribute the increase in leasing discussions to? Some of your office peers have mentioned similar amount of activity picking up. But when you look at office utilization, it hasn't really increased that much and we're entering the recession. So I'm just wondering what your thoughts are on that, what do you hear from your clients?

And again, it's a bit counterintuitive because, as you mentioned, we are in an economy that does appear to be decelerating, which is typically not conducive to office real estate leasing. But that being said, couple of the trends that we're seeing happen, again, utilization is picking up. It has not kind of gotten into full swing and we expect that to happen over the remainder of the year. But we have seen some customers, again, as they called workers back and evaluated the folks that they've hired and remotely over the last three years looking around and recognizing that perhaps in counterintuitive, but that they don't have enough space. And then, secondly, there's a couple of other powerful trends that we alluded to in our previous comments, which is this flight to quality and the flight to capital, and the lack of new supply that is commencing. And so we've had several folks reach out to us that were focused on new construction that has now been shelved and are kind of looking around trying to find kind of the right quality real estate for them to make a decision. And then, at the same time, we're seeing folks that are in buildings that have upside down capital structures, the flight to capital, and that's creating some demand. And then again, this flight to quality folks that are in kind of lower quality space, bringing their people back and want to upgrade the experience. So it's really been kind of a combination of all of those trends that are playing out now, notwithstanding kind of the overall softening economic climate.

And just one more, if I may. It looks like the occupancy went down in Tempe Gateway this quarter. I know that asset’s in redevelopment, but I was wondering what that may be attributable to. And overall, it seems like you are seeing increased vacancy in Phoenix or maybe potentially some upcoming vacancy with First Citizens. I was wondering if you could discuss how you see that space leasing up.

So with regard to Tempe Gateway, we did have a small-ish -- it can screen as a larger percentage, but a smallish in terms of square footage move out. Someone who was occupying some swing space and so they've now moved into their permanent space. So that is what you're seeing there. Just commentary kind of more broadly on Tempe Gateway. Its occupancy has floated down over the last six months plus, but that's bottomed at this point. There are really no more expirations at this point. We're, like you said, in the midst of a really exciting redevelopment there. And so very optimistic about our near term future at Tempe Gateway and beginning the process of building back occupancy. We do have some role coming up in -- notwithstanding whatever may happen with SVB and First Citizens at Hayden Ferry, but it's out in 2024. It's kind of early to see what ultimately is going to end up with those expirations. But again, we're also, like we are with Tempe Gateway, moving forward with a really exciting repositioning and reinvestment in Hayden Ferry as well. And so combine that with generally the activity in Phoenix over the last quarter or so picking up nicely and interest in Tempe in particular in our kind of Class AA assets there, we feel good about our position.

Next question will be from Dylan Burzynski of Green Street.

Colin, you mentioned that the downward pricing for office assets is still playing out and that you guys would remain patient in deploying capital. I guess can you give us a sense for what stabilized yield or unlevered IRR that you guys are sort of targeting, and when you might start to deploy that capital?

Well, Dylan, I appreciate you joining us at early hour on the West Coast. Look it's hard to give a very specific, number, one, I certainly I don't want to compromise our position in our discussions with potential sellers and counterparties. But certainly, we recognize the environment we're in. We look at our own cost of capital today. We hope that pricing in the public markets has bottomed out, but that process is still underway, I think, in the private market. And so that process continues. And our hope over time and you've certainly seen this in past cycles that the cost of capital in the public market could converge with the cost of capital in the private market and create some really interesting opportunities, but we're not there yet. And so like I said, ultimately, we think there are going to be attractive opportunities and kind of how we price this is going to be dependent and specific to kind of the opportunity in front of us, the risk profile, but certainly, with us looking at our own cost of capital as somewhat of a guidepost.

And then I know over the last several years, the office leasing environment has led to higher concessions. But just curious what are your guys' expectations for face rents, should we start to see that as a lever to sort of drive occupancy moving forward?

Look, it is -- there's a lot of different competing forces in the market today. Again, from a macro perspective, a bit of a softening, decelerating economy. But again, I think as you look at the office sector, there's going to be clearly winners and losers. There's going to be higher vacancy broad based across markets. But again, I think a significant amount of that is going to be some structural vacancy in obsolete properties that, from a practical perspective, aren't going to impact the market. And so we do think the market is underappreciating the stability in premier properties. But that being said, we haven't seen a recession in the past where you haven't seen some softening in face rents. And as I mentioned in my prepared remarks, we are focused at the moment on driving occupancy and driving cash flow. We think that's what is important to investors. And we've got some competition that is upside down on debt, doesn't have capital. And so we are going to be aggressive in winning that business if it's there to be won and again, with the goal of driving occupancy, but most importantly, driving cash flow.

The next question will be from Camille Bonnel, Bank of America.

Cousins' limited upcoming lease expiries is very unique within the sector. Can you expand a bit more on the composition of this through 2024, like which markets and/or industries or majority of these lease expiries fall under?

When we look at over the balance of 2023 and 2024, expirations that are greater than 100,000 square feet, there's really just three of them across the entirety of the portfolio. Richard touched on one here in Buckhead at 3348 Peachtree, with Georgia State University, their nighttime business school, and we continue to feel good that we're making progress to get that extended. Looking out to next year, we've got about 105,000 square feet with a company by the name of Accruent at Domain 4, that we do think is a likely move out. But at the same time, that property, if you're familiar with the Domain 4, is one of the oldest vintage low rise buildings that sits directly on the heart of the retail in the Domain, and that we've identified as a longer term vertical development project. And so that not necessarily a bad outcome. And then Richard alluded to an expiration of about 113,000 square feet at Hayden Ferry 2, that we're still early in the process with that particular customer. It is a headquarters location. And so we're in the early discussions, but too early to tell how that will shake out if they move out, renew or renew for some part of the space.

And on the termination income factored into guidance, are you able to give a bit more detail on the timing around it?

We don't typically provide timing on term fees. Sometimes it can be lumpy, sometimes it can be difficult to predict. So I'm not going to give you a quarter-by-quarter run of that, but I'm trying to say that it will be recognized over the final nine months of the year, but not necessarily on a straight line basis.

And finally, your FAD payout ratio seems very healthy and you've historically raised the dividend in the first quarter, but it looks like you've paused this year. Can you update us on how the Board is thinking about the dividend payout policy here?

We have traditionally, and this is -- we've said this many times in these calls, we've traditionally targeted 70% to 75% FAD payout ratios. And if you go back and look at the previous many years, we've been at the low end of that range, right around 70%. It can be lumpy quarter-to-quarter because the biggest driver of FAD is typically second generation CapEx, and second generation CapEx is a little lumpy. So it was a little below 70% this quarter. But for the balance of the year, we anticipate it falling within that range.

And the next question will be from [Indiscernible] [Jansen], [Indiscernible] Research.

I just have one quick one. So WeWork is listed as one of your top tenants, with four properties occupied and about 1% of annualized rent. So WeWork discussed that its assessing it’s real estate portfolio and may amend your exit leases, will negotiate rent reductions. So I was just wondering if you've been having any negotiations with WeWork at your properties?

Yes, I think just about every domestic landlord that works with WeWork, we have been in discussions or engaged with WeWork with regard to the locations we have. There are only four, they're about 1% of our revenue annually. We have a lot of confidence in the quality of each of those locations. They're great locations for a flex office use. And so again, what ultimately happens with WeWork, we're optimistic and hopeful that they're able to manage through their current situation and come out the other side as a great management team and a rightsized and correctly capitalized company that can add value in this space going forward. And again, we feel good about the quality of the locations that we have.

[Operator Instructions] Our next question will be from Peter [Indiscernible] of Jefferies.

The comments you had about pressure on taxes. So could you just talk through kind of, I guess, how is the appraisal process impacting that? I know it is obviously a better quality than most portfolio, but even the best assets, I think, have declined in value over the last couple of years. So just want to hear some color on, I guess, what's impacting upward pressure on taxes, because you could think it might be going the other way?

Oftentimes, these assessments that are done for commercial properties are looking at lagging data. And so there's a lag effect, there's a lag effect shooting our houses, but there's certainly a lag effect when it comes to commercial properties since the valuation is based on cash flow when they needed to be reported before they can look at it. So there's a bit of a lag built into that. At some point, as we get more transactions that will help our arguments in terms of lower valuations. But as we sit here today, there haven't been much -- there haven't been many transactions and the NOI that they're looking at is typically in the rearview mirror. Like I said in my prepared remarks, we and many others process those. And oftentimes, we're successful, but it's -- and then I think it will be easier to do that next year. But this year, most of what we're talking about were, like I said, rearview mirror NOI numbers.

Yes, I wasn't totally sure how the process works. So thanks for shining some light on that.

Thank you. This concludes our question-and-answer session. Now I'd like to turn the call back over to Mr. Colin Connolly for closing remarks.

Thank you all for joining us today. We appreciate your time and interest in Cousins, and we hope to see many of you at NAREIT in New York in June. Have a great weekend.

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