Good day, and welcome to Cousins Properties Second Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Note that this event is being recorded. Now, I’d like to turn the call over to Ms. Pamela Roper, General Counsel. Please go ahead.

Thank you. Good morning and welcome to Cousins Properties second 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, 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 strong second quarter at Cousins. On the earnings front, the team delivered $0.68 per share in FFO and same property net operating income increased 3.7% on a cash basis. We leased 435,000 square feet during the quarter, with a 7.9% cash rent roll-out. New leases and expansions totaled 343,000 square feet, representing 79% of total leasing activity. These are terrific results. I will start with a few observations on the macro environment. The Federal Reserve has rapidly raised interest rates to fight inflation. As a result, the economy is moderating and financial conditions have tightened. Real-estate debt is less available and significantly more expensive. A meaningful bid-ask spread has frozen the investment sales market, but none of this should be a surprise. This is all typical behavior in a tightening cycle. Over the short term, the macro narrative for the office sector is likely to get worse before it gets better. The media will highlight rising vacancy rates and accelerating loan devolves. This reporting will not be wrong. However, this news will not be all that relevant to Cousins. Why do I say this? Because as they say, where you invest matters. At Cousins, we own a fantastic collection of lifestyle, office properties, located in vibrant Sun Belt neighborhoods, with terrific amenities. Our assets are entirely differentiated from traditional office in older downtowns and non-descript suburban locations. Importantly, we are seeing green shoots in our portfolio. I'll highlight the trends. First, the return to work is accelerating in our properties. As it turns out, lifestyle office properties are occupied by ambitious professionals who value an in-person experience, with maybe the Friday exception. Collaboration, mentorship and serendipitous encounters are key to advancing their careers. Come visit one of our properties and…

Thanks, Colin. Companies spanning all sizes, industries and geographies are now decidedly bringing employees back to the office for more frequent in-person work, and our encouraging second quarter operational results are reflective of that positive trend. Before reviewing results, I want to provide an update on the bankruptcy of SVB Financial Group, the entity on our 205,000 square foot lease at Hayden Ferry One in Phoenix. We have considerably more clarity on the situation now as the bankruptcy court has approved the SVBs rejection of our lease with a targeted expiration date of no later than September 30, 2023. Upon SVBs move out we plan to remove Hayden Ferry One from operations in connection with the redevelopment of the overall Hayden Ferry project. We believe this redevelopment will redefine the standard of quality in the Tempe sub-market and are excited about the opportunity to backfill Hayden Ferry One, especially given SVBs average expiring rent is below market. While it is early, a number of prospects have already looked at the space. Gregg will walk through the financial details around this situation in his remarks. On to operating results. Our total office portfolio weighted average occupancy increased 0.5% this quarter to 87.7% and our end of period lease percentage remained unchanged at 90.8%. Our largest percent increases in occupancy were in Phoenix and Houston, though nearly every one of our markets saw some level of improvement. Looking forward, we still expect to maintain occupancy through 2023, absent our Hayden Ferry One and Promenade Central redevelopment projects. We are also hopeful we can begin to build occupancy during 2024, subject to the timing of the commencement of new leasing activity. In the second quarter we executed a solid 40 office leases totaling 435,000 square feet, with a weighted average lease term of…

Thanks, Richard. 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 in our parking revenues. Then I'll move on to our capital market's activity in our development pipeline, followed by a quick discussion of our balance sheet before closing my remarks with an update on our earnings outlook for the balance of 2023. Overall, as Colin stated up front, our second quarter earnings were solid and the operating economics behind them were encouraging. Second generation cash-leasing spreads were positive for the 34th straight quarter. Leasing velocity was strong and same property year-over-year cash NOI increased. There were two unusual items during the second quarter that I’d like to highlight for just a minute. First, we recognized $6.6 million in termination fees during the quarter. Two customers, LiveRamp at her 100 Mill property in Tempe, and Meta at our Domain 8 property in Austin comprised of a 95% of these fees. Both move-outs were initiated by us and both have been fully backfilled at equal or higher rents and extended lease terms. Both transactions were also previously disclosed. I talked about the LiveRamp fee on last quarter's earnings call, and we provided details in the Meta fee in the 8-K we filed in early June. Second, as Richard discussed earlier, in connection with their ongoing bankruptcy case, SVB Financial has rejected their lease at our Hayden Ferry property with an effective date no later than September 30. As a result, we recognized a $1.6 million reduction in revenues during the quarter, related to the right-down of net assets associated with this lease, primarily straight-line rent. Focusing on same property performance for a moment, GAAP NOI increased 6.3% and cash NOI increased 3.7% during the second…

Thank you. [Operator Instructions]. The first question will be from Blaine Heck, Wells Fargo. Please go ahead.

Thanks. Good morning. So Colin, your commentary over the past few quarters is focused on building up dry powder for investment opportunities that you expect to emerge. Can you just kind of provide some more color on whether deals are emerging, that you find interesting. How do you think the current stress on the market is going to play out and maybe where the best opportunities are likely to emerge?

Yes, good morning, Blaine. We continue to highlight, we do have significant dry powder and capacity and pursue new investment opportunities. As I mentioned in my prepared remarks, while I say a significant re-pricing has played out in the public markets and perhaps to fit too much, on the private market that process is still playing out and still their downward pressure on re-pricing. And we're just – we're finding that private sellers are not yet willing to accept probably where market clearing pricing is today, unless they absolutely have to, but we have not seen kind of that pressure fully applied. But as interest rates continue to stay higher for longer, we do think in time that will force some opportunities, hopefully in the not too distant future. But there's a bit outspread today. I think in the interim, perhaps where we might see some interesting opportunities is on the debt site. Whether that's in mortgage debt or preferred equity, I think there the bid outspread is a bit less relevant, and we are starting to see some situations there as owners or developers of new construction tries to refinance their existing construction loans. So we're hard at work. Kennedy Hicks, our Chief Investment Officer and her team are hard at work and in a lot of conversations, but as I said, there continue to be in a patient and thoughtful and right for the – wait for the right pitch, but we'll be ready.

Great, that's really helpful. And just related to that, there's been some speculation. I guess, can you talk about your appetite for investing outside of your conditional Sun Belt markets and specifically touch on whether anything on the West Coast would be attractive and whether a move like that or to any additional market for that matter would need to be done with a larger investment in a portfolio or would you consider single asset?

Well, at the moment we do not feel opportunity constrained at all in our existing Sun Belt markets, and the growth profile in our existing markets, the migration trends have all continued to provide positive tailwinds for Cousins. And again, I think we're going to see some meaningful opportunities. I do think there's a certain sense that quality is incredibly important to the future of office. We're certainly mindful, perhaps at some of the re-pricing that has taken place outside of our existing markets. You know we certainly pay attention to that and evaluate, but again, I think the current priority for us is to focus on our Sun Belt markets where we get great platforms and a real competitive advantage. But we're opportunistic and so as I said, if there's instances where kind of an intersection of price and quality intersects, we'll look at those for shareholders and try to make decisions that ultimately drive value for our investor base.

Great. Thanks, Colin.

Yep.

Thank you. The next question will be from Nick Thillman of Baird, please go ahead.

Hey, good morning guys. Thanks for the update on the late-stage pipeline. Just wondering if we could get a little bit more color on just the breakout between new and expansion leases and renewals and then kind of where the markets – where you’re seeing the most activity.

Sure, Nick. This is Richard. We do have more activity on the renewal side and the late-stage pipeline than we had in our completed activity this quarter, but frankly that's a result of being really focused on taking care of expirations that may not be directly in front of us and being proactive, but again a new expansion activity is still encouraging. In terms of the late-stage pipeline, that breakout among the markets, we're seeing continued strength in Atlanta. It's been a very strong market for us over the number of quarters from a volume perspective and interestingly Tampa and Phoenix are very active.

That's helpful and then maybe just on Neuhoff, it sounds like a little bit pickup and demand there. Of likely 150,000 square feet of active proposals, what's like the average space size people are looking there?

I'd say it's a little around probably 25,000 square feet on average, but it's fairly consistent with what we completed today.

And then just a quick cleanup question. Of the 700,000 square feet expiring, that's inclusive of the SVB termination, correct?

Yes, for 2023 what we're showing includes SVB.

Okay, thanks.

Sure.

Thank you. Next question will be from Anthony Powell with Barclay. Please go ahead.

Hi, good morning. Question on AI and office leasing. There's been some speculation that we're starting to see some venture capital and AI related leasing in San Francisco. Is that something you've seen in Austin or do you expect that in Austin going forward?

I think in time you'll see, if AI is this powerful part of the economy that many expect, I think in time you'll see that activity play out in strong tech hubs like Atlanta and like Austin. I think in the here and now, I think the predominance of that activity is likely in San Francisco. But again, like the technology sectors migrated over time, we would anticipate in the future to see some of that demand.

Thanks. Maybe on parking fees, have the actual fee levels changed over the pandemic and is there an opportunity to maybe increase those fees as people start coming back to work more often?

Anthony, could you repeat the question? I had trouble hearing.

Yes, just on parking fees. I know the parking revenue was a source of upside in the quarter. I'm curious about the actual fees and if you can increase those over time as more people come back to work.

That's a great question. The answer is yes, we have been able to and have been proactive about raising where we can, parking rates through the pandemic. It's been, I wouldn't call it broad-based, but there have been opportunities. At the same time, we do have some constraints in our leases as to how much we can raise them in a given year or how often. So a lot of times those rate increases will only apply to transient parking generally.

Okay, great. Thank you.

Thank you. We have a question from John Kim, BMO Capital Markets. Please go ahead.

Hi, good morning. This is Regan Sweeney on with John. You highlighted some strong leasing in Atlanta. Alternatively in this market, there have been some reports related to NCR Corp listing its space for sublease. Can you just comment on if you're working with them on marketing this space and then the ultimate potential mark-to-market of their current space?

Good morning, it's Colin. NCR is in the process of splitting the company into two separately publicly traded companies, one a software company and one the ATM and hardware component. So as a part of that corporate restructuring, they have put on the sublease market, the smaller of the two buildings in that Midtown Atlanta urban campus and that's approximately 250,000 square feet. We've had active discussions with NCR as they attempt to move forward with that sublease. We do have quite a bit of a term left on that least, and so if there's an opportunity for them to bring in a subtenant and if they were interested in going direct, if the economics work for us and our shareholders, we absolutely consider that and to work with NCR in that future prospect. But the economics would again, have to make sense. We do believe that that rent in below market today. And so again, I think it's an opportunity and over time we think it could be a great outcome for our shareholders in the sense of similar to what we've done at 300 Colorado and Austin. We can effectively multi-tenant a really terrific trophy building in midtown, while we continue to collect rent from NCR.

Thank you. I appreciate the color. And then just one follow-up question on Neuhoff. Has there been any impact to the leasing there due to Oracle’s delayed HQ opening? And then is there any expected shift in the tenant pipes going forward with who you're currently trading paper with?

Yes, really the Oracle delay in building out their campus, again, that's across the river from us and would really be getting new jobs into Nashville as given kind of coming out of the pandemic. That has slowed a bit. They are still planning to move forward with building the bridge across the river from their project to Neuhoff. It has not impacted us at all. Again, that's going to be 100% kind of user owner occupied building with Oracle, but we continue to see really positive demand at Neuhoff. Nashville's a market that continues to benefit from in migration and Neuhoff is without question the most differentiated product that exists in Nashville today.

Thank you very much.

Thank you.

Our next question will be from Jay Poskitt of Evercore. Please go ahead.

Hey, thanks. Good morning. I was wondering if you could just provide a little bit more of a breakdown just in tenant type and tenant size. Just in our leasing pipeline, kind of how that break down has changed throughout the year.

Sure. This is Richard. I honestly don't see this has changed all that much. Again, I would comment similar to what I said earlier. We do have some renewal activity in our late stage pipeline that is a little bit larger as we look forward to some of our explorations next year and even a little bit further out. But generally speaking, I think we've been fairly consistent on average transaction size.

Okay, that's great. Thanks. And then just on the expiration front, do you have any update on any of the larger lease expiration I believe in the fourth quarter? Do you have any update on that as well?

So, in terms of larger lease expirations, again, we have SVB which we’ve already covered as now a new 2023 expiration. I’ll give a quick update on the other expiration that has been pending, and then lease negotiations. Again, that's on track here in Atlanta. And then really, we don't have any other large expirations until the latter half of 2024. We have about a 100,000 square foot customer domain forward in Austin that expires in August of next year. We're actually having dialogue right now with them. But like we've mentioned in the past, that property is a low rise creative office. Really a good product and interesting product for the right user, but it could be more compelling for us over time as a development site. So time will tell what we end up doing there, but a full renewal may not necessarily be the right option for cousins. We also have 113,000 square foot customer expiring at the very end of 2024 at 1832 in Phoenix, and we are in advanced discussions with them right now about a partial renewal.

That's great. Thank you.

Next question will be for a Camille Bonnel of Bank of America. Please go ahead.

Hello! In our Austin channel checks, we've been hearing that the tech is not very active and there are really no large tenants in the market. Yet, as you highlighted at Domain 8 and also the news of TikTok taking back sublease space in one of your buildings, I was just hoping to get a little bit more color on the Austin market, given your comments at the moderating demand. So do you think this moderation is driven by a summer lull or are you expecting it to continue throughout the year?

Yes, good morning Camille. Broadly speaking, we've seen a bit of a pause in tech leasing, not just in Austin, but really around the country, and that shouldn't really come as a surprise as you look at kind of the latter half of last year and into this year, where a lot of those businesses were retrenching, preaching years of efficiency, and as a part of that, typically real estate decisions get delayed. Though over the course of this year we've started to see some of those businesses pick back up. We're seeing their equity valuations do a whole lot better, and we are starting to see some signs of tech kind of re-emerging. You touched on the 100,000 square foot lease that we did with one of the largest tech companies in the world at Domain 8, and we're seeing kind of other smaller examples, full floor type examples of large tech users across our portfolio, in particular here in Atlanta. As we look at Austin over the next several years, demand over the medium and long-term is really never something that we worry too much about in Austin. It will continue to attract businesses from different parts of the country. Their economic development arm is hard at work and there are some several potential large relocations circling Austin. So any slowdown in demand I think will be short-lived in Austin. The challenge for the city over the next year or two will just be, there's a good amount of supply. Perhaps folks got out in front of themselves, but I think as demand returns, we're confident that that will rebalance and fill up. So for us, as Richard pointed out, our portfolio is 90%, almost 94.5% leased, with just about six years of weighted average lease term and really other than the one customer out of the domain that really potentially is in a land site. We have no material explorations into the next couple of years. So if the market softens, we plan to candidly be on the sideline.

Appreciate the color. And you've talked about driving occupancy as the key priority right now, but could you expand on the rent change dynamics you're seeing and put that into perspective with what's going on with market rent?

Well, I'd say again, Richard pointed out earlier, when you look at our net effective rents over the last year compared to 2019, our overall net effective rents continue to track meaningfully upwards. At this point I'd say, right, the market is very much bifurcated and if you're in traditional office, you're very much an order taker. Within our portfolio, while we've seen leasing costs go up, both in the form of perhaps a slight uptick in free rent and a larger uptick in tenant improvement allowances, we've been able to more than offset that with driving rental rates. So, as we look forward, we're optimistic that we can continue to maintain base rents.

Thank you.

Thanks Camille.

Next question will be from [inaudible] of Mizuho. Please go ahead.

Hi, thank you for taking my question. I was just wondering, can you share more examples of tenants that need more space as employees return to work?

So, it is again, I think we're in conversations with folks, and as I mentioned earlier, there's several existing tech companies within our portfolio that perhaps have 25,000 or 50,000 square feet and over the last quarter or so have inquired about additional full floor leasing activity, and so again, I think that's been a very positive sign for us. But you are starting to again, see some larger users out there, not just in our portfolio, but across our markets and beyond. And the AT&T, coming back in for a large space that they had recently given up, we've seen some reports out of Snap on the west coast who'd given back space and now is releasing space. So it's still in the early part, early innings of that, but it's great to see some of that activity taking place. And it's not just tech. We've seen some professional services firms that have downsized and now again back in the market, accounting firms, law firms, taking incremental space to grow their footprints.

Great. And just a second one for me. You mentioned you're expecting to increase occupancy in 2024. I was just wondering if you can provide some more color on what gives you confidence that that will be the case. Thank you.

Well, it's really a function of positive new leasing momentum that has really developed here in the second half of the year, combined with low upcoming lease expirations. And so we're really well positioned with the portfolio. Now, bear in mind, as we do new leasing activity, there's always a lag, anywhere from eight to 12 months, between signing that lease and getting the customer space built out, occupied and rent commencing. And so that will ultimately dictate the extent at which we can drive occupancy in 2024. But again, if you pull out our redevelopment projects and new development projects, the kind of supply and demand of our space is in a good spot.

Let's move on to Peter Abramowitz with Jeffries for the next question.

Yes, thank you. I think Colin spoke earlier about sort of a lack of adjustment in seller expectations that really only mean market clearing prices if they absolutely have to. I guess could you talk about that dynamic? It seems like especially from private equity, with the amount of redemptions they've faced, they have had to sell and come meet market expectations and other property types of lease. So could you talk about that on the office side, if you're seeing any kind of signs of that or if that's something you expect to see?

Yes, yes, you've seen private equity. As you mentioned, they've got redemption selling, kind of other property types where perhaps the pricing hasn't faced as much of a re-pricing. And so I think there's been more of a reluctance to sell down office exposure at market clearing prices. Again, I think there's somewhat of an expectation in the private market that perhaps rates come back down and that cap rates kind of readjust. That would certainly show – it should show itself in the public market pricing as well. So if you've gone through previous cycles, this kind of delay, this bid-ask spread kind of takes a little longer for the activity to resume, it really is not surprising and it's very consistent with past cycles. But ultimately as you look at kind of where rates are today and kind of a pretty big wall of loan maturities that's really finally starting to rear itself here in the second half of ‘23 and ‘24, we do think that that's going to kind of begin to force action. These assets need capital. They need new capital for leasing costs, and we do think that that will start to drive some transaction activity at hopefully attractive market clearing prices.

Okay, got it. And then one other one. So since your last call, I think there's probably – there's a lot more confidence in the Fed's ability to engineer a soft landing here, certainly reflected in the equity markets. But any sense of, has that impacted kind of tenant psychology in your conversations around leasing? Does it seem that that's something that's kind of making them feel better about committing to leases long-term?

Yes. Again, I think our experience and our lifestyle portfolio is throughout the – even the pandemic to now. The term of our leases have stayed pretty steady on average between call it six and a half to seven years on average. So our customers and our quality of properties have been pretty confident to make long-term decisions. I do think there are – there is more confidence in companies in their underlying business to start to make decisions. But I’d say, the biggest driver for us has been really kind of the return to work initiative and more of our customers utilizing space. And I think CFOs have a whole lot more confidence in allocating capital into more real-estate spend when they've got confidence that the employees are going to use the space and so that's really been positive. And as I think about our business, a year ago, I was up at night worrying about both the secular and the cyclical. I'd say today at night, I'm just really worried about the cyclical and I'd say that's a much better place to be. And again, the quality of our balance sheet and the portfolio gives us a lot of confidence as I mentioned, to drive during all parts of the cycle.

Got it. That's all for me. Thanks.

Thank you. The next question will be from Dylan Burzinski of Green Street. Please go ahead.

Thanks for taking the question. I guess just going back to potential acquisitions and whatnot and realizing that, still in their early and you guys are being patient, but just from markets and whatnot. Are there any markets within the portfolio today that you're more interested in growing in versus others?

Yes Dylan, great question and we love all our markets the same. But I think as we look at the current kind of portfolio construction, that has pretty large exposure in Atlanta and Austin, we'd love to find opportunities to allocate capital, some other really strong markets, where perhaps they would have less exposure and so I had certainly looked at Dallas, Charlotte, Nashville. We'd love to grow our presence in those markets. But at the same time, given how strong our operating platforms are in Atlanta and Austin, if great opportunities come along there, we will absolutely invest in them. But in time, we would like to see a path to increasing exposure in some of those other markets.

Thanks for that detail. And then just going back to some of the comments made up regarding office utilization. Are you guys able to share sort of where utilization is at today or maybe over the last several weeks versus where was that in the portfolio at the start of the year?

Yes, again, utilization I think is to be clear as a bit of an imperfect science. And it's one that again, I think a lot of folks rely on the capital data. I don't know that we've got a ton of confidence in that data or perhaps that that data is reflective of, not necessarily the quality of assets that we own or some of our peers own. But we do kind of exhaust our physical counts as best we can; parking garages, discussing kind of metrics with our customers. We've even had some discussions with some of these companies that use cellular data and I'd say, in all cases really we're probably around 70%-ish today, that’s kind of where those numbers had come back. And I think as we think about adjusting that for kind of the Friday exception as I mentioned earlier, we think we're making great progress and that was probably closer to 60%, a year ago.

That's helpful. Thanks.

Sure.

Thank you. Next question, will be from Andrew Rosivach of Wolfe Research. Please go ahead.

Thanks for taking our questions. This is Alia Zien [ph] for Andrew. Just one quick question. I don’t know if you could provide any guidance around the amount you expect to spend on the redevelopment of Hayden Ferry One?

Yes, good morning. It is that we're still in process of finalizing our budget there. We hope to have that completed by the fall and ready to move forward with that project. Again, as we look at it, I say the overall priority in that project is going to be, Hayden Ferry One, but while we are at it, we're going to go ahead and do work across the entire campus. And as Richard said, I think we have a great opportunity to differentiate Hayden Ferry with our redevelopment work as the leading property in all of Phoenix and we've had great success doing that at Cousins. John McColl and our development team do excellent work. I think many of you all have seen what we've done at Bucket Plaza and the promenades, and we'll do something along those lines there. I think excluding anything that's going to be kind of revenue producing, historically we spend anywhere from $30 to $40 a foot on those types of projects – and based on kind of preliminary numbers, I would expect it to be somewhere in that neighborhood when we finalize it.

Thanks. That’s helpful. That’s all from me.

Great.

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

Thank you all for joining us today. We appreciate your time and continued interest in Cousins. If you have any follow-up questions, please feel free to reach out to Gregg and Ronnie. We look forward to hopefully seeing you all at some of the conferences as we head into September and October. Have a great day!

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