Good morning, and welcome to Cousins Properties Second Quarter Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now I'd like to turn the conference 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, cousins.com.

Thank you, Pam, and good morning, everyone. As we reach the midpoint of 2021, it has been wonderful to see many of our customers bringing their teams back to the office, and we anticipate seeing more post-Labor Day. While we continue to monitor our public health guidance around COVID-19 and specifically any office delays brought on by the Delta variant, I also remain optimistic about the remainder of 2021 and beyond. Our team delivered strong financial results during the second quarter. Here are a few highlights. On the earnings front, the team delivered $0.69 per share in FFO. We leased over 484,000 square feet with a 12.9% increase in second-generation cash rents. Same-property NOI on a cash basis increased 7.1% and our net debt-to-EBITDA at quarter end was 4.55 times and G&A expenses as a percentage of total assets were at just 0.36%. Turning to the business. Our ongoing conversations with customers provide us unique insight into their evolving long-term office strategy and those plans are beginning to crystallize. First, most of our large growing customers are excited about their return to the office. While the Delta variant could create delays, we now have conviction that a meaningful return to the office is not an if, it's just a when. In some instances, employees will return for part of the week, which some call hybrid. Importantly, the nature of the hybrid model coordinated in-office days, which are designed to facilitate collaboration, necessitates real estate sites for peak load and likely does not have a significant impact on office demand. While it's hard to remember office life before the pandemic, this was already the reality for most technology and professional firms.

Thanks, Colin, and good morning to everyone on the call. This quarter saw an improving economic backdrop and more stable operating environment, resulting in a strong second quarter operating performance. While the pandemic is certainly not over and the Delta variant persists, the demand for office space across our markets is improving. As Colin mentioned, the vast majority of our customers have either already returned to the office or have signaled they will return sometime this fall, some fully and others in a phased or hybrid format. From our perspective, post-Labor Day seems to be the most common return timing cited. For now, physical customer utilization in our portfolio sits around 30%. The variation in utilization across markets that I mentioned last quarter remains with Atlanta, Dallas, and Tampa, all running at higher utilization rates. We still anticipate utilization to be largely back to normal portfolio-wide by the end of 2021. Turning to second quarter operating results. Our total office portfolio lease percentage and weighted average occupancy both came in at 89.4% this quarter. Our leased percentage declined 80 basis points this quarter, which was mainly attributable to the previously known move-out of Anthem at 3350 Peachtree in Atlanta. Given we report occupancy on a weighted average basis and Anthem expired at the end of the quarter, we actually saw a modest increase in occupancy versus last quarter. For the balance of the year, we expect our weighted average occupancy to remain relatively stable. As a reminder, Norfolk Southern will vacate 370,000 square feet at 1200 Peachtree at the end of December, representing a fantastic value creation opportunity going forward. And looking forward to 2022, I would note that we have only 6.5% of our annual contractual rent expiring with no expirations greater than 100,000 square feet. As for leasing activity, we executed a solid 39 leases, totaling 484,000 square feet this quarter, surpassing our level of reported activity in the first quarter of 2020. Leasing volume wasn't the only metric back to pre-pandemic form this quarter. Leasing mix was much improved with new and expansion leases accounting for 74% of total activity. Recall that new and expansion leasing combined hit a pandemic low of just 14% of activity two quarters ago. Net effective rents were $23.77 this quarter, an improvement over the first quarter and only $0.05 lower than our reported net effective rents for the full year of 2019. Rent growth remained remarkably strong as well, with second-generation net rents increasing 12.9% on a cash basis.

Thanks, Richard. Good morning, everyone. I'll begin 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 leverage position before closing my remarks with updated information on our outlook for the balance of 2021. As you could tell from Colin and Richard's remarks, we've been extremely busy. However, we don't want all of that external activity to take attention away from our very solid internal performance during the quarter. At $0.69 per share, FFO was up almost 5% compared to last year, and the important operating metrics that we all focus on were very strong. Leasing velocity returned to pre-COVID levels, second-generation cash leasing spreads were up double-digits and same-property NOI on a cash basis increased 7.1% over last year. Focusing on same-property performance, second quarter results represent a significant and constructive changing trend. Numbers were driven by improving revenue, which increased 6.6% on a cash basis. This is the first year-over-year increase in same-property revenue since the first quarter of 2020. The largest variable within our same-property performance remains parking revenues, which are in large part driven by the fiscal occupancy in our buildings. After bottoming during the fourth quarter of 2020, same-property parking revenues are up 14%, but they still remain 23% below pre-COVID levels. Turning to our development efforts. One asset, 120 West Trinity, a mixed-use property in the Takeda submarket of Atlanta that we developed in a 20:80 joint venture was moved off our development pipeline schedule and into our portfolio statistics, while another asset, Domain 9, an office property in the Domain submarket of Austin, commenced development during the second quarter and was added to our schedule. The current development pipeline represents a total Cousins investment of $492 million across 1.3 million square feet in four assets. Our remaining funding commitment for this pipeline is approximately $210 million, which is more than covered by our existing liquidity and future retained earnings. On the transaction front, as Colin laid out at the top of the call, we've been very active. In total, the sales of Burnett Plaza and One South combined with the purchase of 725 Ponce, the investment in Neuhoff, and the development commencement of Domain 9 represent over $1.1 billion in transaction activity year-to-date. In addition, our joint venture partner at Dimensional Place in Charlotte has exercised their option to purchase 50% interest in the property with the closing expected at the end of the third quarter. As this series of transactions unfold, we intend to maintain our net debt-to-EBITDA around 4.5 times as we have done with very few exceptions since 2014. We believe this leverage profile provides both defensive support during challenging times as well as offensive firepower to execute compelling transactions when the opportunity presents itself. In addition, it's a small transaction, but we do want to call your attention to the sale of the land parcel adjacent to our 100 Mill development in Tempe, subsequent to quarter-end. The site was sold for $6.4 million earlier in July and will be developed into a Hyatt branded hotel. It's a testament to the quality of that location that this sale held through the COVID pandemic. This new hotel will be an important amenity for our 100 Mill customers as well as the customers and the other five buildings we own within two blocks of that site. On the capital markets front, we closed on a $350 million unsecured term loan during the second quarter, replacing a $250 million term loan that was scheduled to mature later this year. The new loan matures in 2024 and the applicable LIBOR spread was reduced by 15 basis points. The covenant package remains unchanged. It was a very solid execution from beginning to end. I'll close by updating our 2021 earnings guidance. We currently anticipate full-year 2021 FFO between $2.70 and $2.78 per share. This is up $0.01 at the midpoint from our previous guidance. This guidance includes all of the transactions that we have discussed on this call. There are no other dispositions, acquisitions, or development starts included in our guidance. The most significant variable behind our guidance remains our parking revenues. As Colin discussed earlier, our customers have begun returning to the office, and we anticipate this trend accelerating after Labor Day. Our current parking revenue assumptions reflect this outlook. However, the Delta variant could delay timing, but it's too early to know for sure. With that, let me turn the call back over to the operator for your questions.

We will now begin the question-and-answer session. First question comes from Blaine Heck of Wells Fargo. Please go ahead.

Great, thanks. Good morning. I thought it was interesting you guys kept the garage adjacent to One South. Can you talk about that decision? What impact that might have had on pricing, had you included it in the sale and then your future plans for that piece of the property?

Good morning, Blaine. As it relates to the garage, we did purchase that last year, and it was a terrific transaction for us to mitigate what could have been a parking challenge for One South going forward. And so it was very positive to add that parking immediately adjacent to One South. We did have conversations with our buyer as to whether to include that or not. We ultimately settled on a long-term leasing opportunity for them with the garage. And I think as we've said in the past, it's a terrifically located garage, only the best located garage in the city of Charlotte, and we actually think it could be - while not a typical investment for Cousins given its location and the long-term leases on it, we think it could be a pretty attractive investment for us. We'll just continue to evaluate it and monitor it over time as to whether we continue to hold that or sell it at some point in the future.

Okay. Got it. That makes sense. And then I just wanted to ask about Domain 9. Obviously, you guys are just starting there and have a bunch of time to lease that space up. But given the strong demand in that submarket, I wanted to ask about leasing prospects you guys might have there and how you're thinking about the balance between maybe getting some solid pre-leasing on that project versus maybe waiting it out to take advantage of potentially higher rents in the future?

Yes. Great question, Blaine. I certainly don't want people with these new exciting transactions to forget what we think was a really exciting announcement back in June to start Domain 9. We are extraordinarily bullish about Austin in general, and I'd say the Domain in particular. And I think as I said in some previous conversations, we really felt like our customers were pushing us to start Domain 9. And that's both from kind of existing customers in the area as well as the migration into Austin. And we've got a really terrific pipeline of activity in that building, ranging from some small to medium-sized and candidly, some very large opportunities that could potentially take big chunks or all of that space. So we're actively working through those discussions, but we wouldn't have started it if we didn't feel really good about our prospects to lease that up.

Okay. Great. That's helpful. And then related to that, when you think about the development pipeline, you now have Domain 9 and Neuhoff that are both speculative developments. Clearly, you guys see good demand in those markets, and you're confident in leasing progress there. But looking forward, do you think having those speculative projects sets the bar a little higher for pre-leasing to start any other developments in the future?

Well, I think as you look at the announcements we made yesterday and look at those in their totality, we actually reduced our kind of our net speculative vacancy, if you will. As I mentioned in my remarks, we effectively traded a 350,000 square foot speculative space in an older vintage asset at One South and shifted that to Neuhoff, which will be, again, I think one of the most differentiated products in all of Nashville. So we haven't actually increased our speculative development exposure, we've just shifted into what we think is better products. But as we start any new project, that has got some speculative component to it. We certainly are looking at our existing portfolio and vacancy that we have and as well as how much additional spec space to add and are certainly trying to balance and manage our overall risk profile. But I think in the case of where we stand today, as I said, we're very bullish on our prospects and our opportunities at Domain 9, and feel good about how we have shifted the vacancy between One South and Neuhoff. And again, we have a really terrific land bank within the company that could support over 5.5 million square feet. And so as we continue to see the demand and the in-migration into the Sun Belt and again, some of our existing customers looking to expand, we're evaluating that land bank and are trying to think about what could be the next opportunity to meet our customers where they want to be.

Got it. Thanks Colin.

Thank you. And the next question comes from Jamie Feldman of Bank of America. Please go ahead.

Great. Thank you and good morning. I was hoping you could talk a little bit more about the pricing on both the acquisitions and the One South sale? Maybe just give us some more color on what gave you comfort on the returns and the prices you paid and accepted?

Yes. Good morning, Jamie. So let me start as I - on One South, which I mentioned in our call. We feel like that pricing was very attractive for us at Cousins as we look at whether we continue to rebuy One South or sell it at that price. And I think from our view and perspective, that pricing fully reflected the upside from kind of the value-add releasing nature of that asset and particularly when you look at the vintage of it. And I think, again, if you look at what we put in on our books when we did the TIER merger, we're effectively selling it at just about the same price. And we've obviously gone through a pandemic and still in the midst, hopefully, at the tail end of this pandemic. And the asset down at 58% lease. We think it was a very attractive price for us to execute for shareholders. Kind of pivoting over to the new acquisitions at 725 Ponce, it - we're - as we disclosed yesterday, that's a 5.3% cap rate and about 6.1% GAAP return, which reflects the below market rents. And I think it's interesting, as you going to compare that to the transaction we did at the rail yard in Charlotte in December, it's actually kind of side-by-side, very similar yields, very similar transactions. And I say importantly, in both cases, we were able to acquire an adjacent piece of land that gives us some future upside to develop those additional parcels and achieve some value-add development returns to really complement the acquisitions.

Okay. That's helpful. And then I guess just thinking about Nashville. I mean, what do you envision there in terms of your ability to grow over time? And I guess for both sides, how soon do you think you would actually put some of that land to work?

Well, in terms of Nashville, I mean, one, we've been evaluating that market. I think we've talked very publicly in the past about Nashville and our interest in it. And it's just got so many of the same characteristics that our other Sun Belt markets like Atlanta and Charlotte, Austin and Tampa and Dallas and others have and continue to see very similar in-migration; and Oracle and Amazon's recent announcements, I think, certainly solidified our views on Nashville. I think what's so exciting about Neuhoff is, as I mentioned, we think will be the most differentiated and unique project in Nashville. But importantly for us, it does have a path and room to grow. As a part of our transaction, we acquired a Phase II site, and we'll actually build some of the infrastructure and the parking during the Phase I construction period. And then beyond Phase II, we do have additional rights to some adjacent land that could create a Phase III or more. But certainly, now that we're there, our goal over time is to scale a really attractive and highly desirable portfolio. And that could be a combination of additional development, land purchases, and certainly some property acquisitions. So we're excited to grow and build a Cousins platform in Nashville.

And then what's your team going to look like there? And what do you think it's going to look like over time?

Well, as we build the portfolio and grow it to a size that we think justifies - economically justifies having boots on the ground, we'll do that. I think at the moment. We feel, again, we're very excited about new office as it does have a development partner that we can leverage in a new city who does have a team on the ground. And I think that's a great way for us to start and enter Nashville in a strategic way. But at the same time, for us here in Atlanta and our team, Kennedy Hicks, who's our Executive Vice President of Investments, Nashville is just a short drive away, and so we're able to be there and have some of our team on the ground on a regular basis as well.

Okay. Thank you and then shifting gears. It sounds like you guys are a little more optimistic here on 3350 and 1200 Peachtree. Can you just talk about the leasing pipeline for those projects - for those spaces?

Yes. Hey, Jamie, this is Richard. The pipeline is in good shape, much like it was last quarter for both those assets. And the activity kind of ranges the full gamut from a size perspective. So we're really encouraged by what we're seeing and the demand for both those locations. And feel confident we'll have something good to report here soon with regard to forward progress on the lease-up.

Okay. I assume there's nothing in guidance on 3350 for this year?

No, there's nothing in guidance.

Thanks, Jamie.

Thank you. Next question comes from Dave Rodgers of Baird. Please go ahead.

Hey. Good morning everybody. Colin, I wanted to ask about the flip side, I guess, of the argument of expanding into some of the new markets, newer products and maybe more amenitized locations? And then how that impacts your view on selling assets going forward maybe undifferentiated CBD assets or fringe-oriented kind of large glass boxes that maybe don't fit what you've been trying to do in the last five or six years? And your thoughts around how that's changed since COVID?

Well, I think that for us, again, I think what's exciting as you look across our portfolio, by and large, the overwhelming majority of it, I think, do reflect these highly amenitized, well-located, experiential type assets. And so as I look around what we own here in Buckhead and Midtown, certainly representative of that as well as what we're doing out of the Domain and Downtown, Austin and Tempe, Charlotte. So we have been at this strategy for now about 10 years, and I think that have really made terrific progress. And we're going to continue that progress when we identify and see those opportunities to either acquire and/or build, and we'll fund that appropriately with some of the, call it, older vintage, higher CapEx properties. But I think in our case, that's actually a pretty small percentage at this point.

Maybe with respect specifically to Charlotte, obviously, a number of one-off and unique situations where you've reduced exposure to the market, maybe where you had been a year and a half ago. Any broader read-through on Charlotte and particularly on uptown with regard to the assets you have NASCAR Fifth Third that remain there relative to kind of where you've been trying to grow there, which has been uptown?

Yes. And so again, to be very clear, we have a high degree of conviction in Charlotte as a whole and are excited to grow our presence there. As I mentioned, we have a fantastic team, and we've got some really terrific land sites in South End but we continue to like Uptown as well. And it really is, if you kind of look back over the last years, you mentioned they were all very unique situations where we monetize assets there, not as driven by our view on the market. But in the case of Hearst Tower, right, a massive headquarters lease with Truist, a large financial institution who absolutely had to own their corporate headquarters that was a strategic transaction that we felt like made sense. Gateway Village in Charlotte, our partner of 15-plus years in Bank of America had a purchase option, and they decided to they elected to exercise that. Very similar with Dimensional Place, just a fantastic execution for Cousins and a great win for shareholders. But as a part of that original lease, they had a purchase option. And then I think more recently with One South. Again, it's an asset that we acquired via the TIER merger and knew of the vacancy coming with Bank of America. And as I said, ultimately, somebody offered us a price that we felt like reflected kind of the entirety of the upside and we were able to recycle that into newer vintage properties. So that, again, was a unique situation. But Charlotte as a whole is going to continue to do well. It's going to continue to benefit from the migration at Cousins, we fully plan on participating in that growth.

I appreciate the clarification on that. Thanks. Richard, maybe on leasing more broadly. It sounds like for both the vacancies that you've got, either currently or pending in Atlanta, the larger ones you've got various size ranges. But I guess across the board, can you talk about activity from different industries, what's there, what's missing? Have the terms leases changed around termination options and out those types of things and then maybe net effective rents where those are settling in? It's good face rents, but curious on kind of where the concessions are settling in.

Sure, sure. So let me start with just the pipeline in general. I mean, again, it's positive across the board, both in terms of markets and then in terms of early stage versus late stage. And so we're seeing encouraging interest and continued demand. I would say that from an industry perspective, it's certainly - I think it certainly holds true and we positive very early on that technology would highly likely be the industry that leads us out of the downturn and probably has the most demand and certainly pent-up demand. And so we're seeing that for sure. But we're seeing demand from a lot of different segments. And I really can't say that I have one industry or one segment that is just completely absent in terms of kind of waking back up and deciding to restart their planning and look at taking more space or addressing kind of near-term decisions. So I think it generally, it's broad-based, but certainly the leader is technology. And we all know that the coworking/flex office players were really driving a lot of volume going into COVID and before the market turned down, and they are not driving demand at this point. So a very healthy dynamic there as well. In terms of concessions, and just net effective rents, I'd say largely just starting at the top face rents have held in through this downturn and now recovery and really have been kind of flat to slightly down in places depending on the market. But concessions have been where a lot of the action has been and I'd say the largest pressure point has been free rent. Another pressure point has been TI, but not quite as much as in the free rent. But fortunately, in terms of our signed activity, we've been able to continue to improve our net rents and offset those increases in concessions. So while we are a little bit elevated say, if you just look at this quarter in isolation, it's certainly, if you look at TI and free rent combined, we've seen these levels on a per square foot per year basis in the past. So we're not way out of line, but we are what I consider to be slightly elevated, but it's hard to really hang your hat on one quarter. So I think we'll continue to feel that pressure on concessions. But at the same time, we're having pockets of activity in all of our markets, we're feeling like we can begin to kind of get on offense a little bit and start to press rents in our favor. So we feel good about where we are. We're hitting what feels like an inflection point across the board on leasing activity and feel very optimistic going forward. Not sure if I hit all of your different questions. So let me know if I missed something.

No, that's good to hear, and you hit them all. Sorry, I threw a lot of...

Great.

A quick question for you, Gregg, on the 1200. Does that go into redevelopment or does that stay in the same-store pool? And do you have a kind of a value or redevelopment budget for that asset yet?

Dave, we'll move that asset once Norfolk Southern vacates out of the same property pool. Clearly, it will be empty, and we don't go into a redevelopment Buckhead. We haven't - we're very far along in the redevelopment plans, but we haven't disclosed the redevelopment budget yet.

Okay. Thank you.

Thanks, Dave.

Thank you. Next question is from Daniel Ismail, Green Street Advisors. Please go ahead.

Great. Thank you. So office pricing in the Sun Belt appears to be improving recently. I mean, I think the One South disposition proves that. But I'm curious what you're seeing in terms of land values across your footprints. How much do you think prices have changed for good office development sites across your footprints year-over-year?

Yes, Danny. Good morning. You're certainly starting to see interest in land in kind of high-quality urban Sun Belt markets. We're seeing that interest grow. And again, I think it's in part due to kind of the resurgence of office demand and this flight to quality that is continuing to accelerate. And I think an appreciation for the underlying customer base for kind of newer and cooler and again more amenitized. At the same time, you're starting to see the multifamily space become very active again. I think we've all seen, particularly this quarter, our multifamily peers really start to demonstrate strong activity and leasing numbers and improvements in rental rates. So I think there's competition from those folks once again. And so yes, land values are - while relatively dormant last year, you're starting to see that activity pick up and land prices are moving again. Hard to put a specific percentage on it. I think so many situations are unique and different markets are unique, but there's definitely upward pressure.

Great. And then just a question on the differences between older vintage and newer products as well as Class A and Class B. I'm curious if you're noticing any distinction rent growth or concessions or tenant demand between older and newer product on the Sun Belt or is this just a situation of a rising tide lifting all boats unless everything in the Sun Belt is doing well? Or is there a meaningful distinction between those two property types?

Yes. Danny, you are seeing, I'd say a continued bifurcation even in the Sun Belt between kind of rental rates and rental rate growth and net absorption between, call it the Class A plus trophy space and kind of newer vintage space versus kind of older and commodity and suburban space. And I think you drill down to each of our markets and you looked at the most recent quarterly statistics and looked at kind of absorption by quality or age vintage you'd see, in many cases, the vast majority or kind of call it a disproportionate share, the leasing activity would be in those kind of higher-quality assets. One thing I would just kind of point out as it relates to kind of Cousins in our portfolio and what we have found that certain buildings that are of older vintage have - can sometimes be terrific opportunities to reinvest and bring an asset up to kind of today's standards. If they're in the right locations, going to have the right bones to them, perhaps have the kind of the right outdoor space, et cetera. And I'd just - I'd point to a project that we're doing right now here in Atlanta, down at Buckhead Plaza 1 and 2, which are older vintage assets, but sit at right at Peachtree and West Paces Ferry and have terrific outdoor space and some of the best restaurants in Atlanta. And we're in the midst of a nice repositioning of the ground floor kind of playing in outdoor space. And the underlying customer base in Atlanta is responding very favorably to that type of reinvestment, and we're seeing very strong activity in that space. So again, I think as we kind of take an asset that has probably fallen from that tier and are putting it back, it's possible to do that even with older vintage assets if it's got the right characteristics.

And then are you noticing any of your tenants or leasing that you signed recently or in your leasing pipeline, a migration of tenants from Class B to Class A buildings?

No question. You're seeing that. And as I mentioned in my prepared remarks, absolutely, you're seeing companies trade up. I think you typically see that kind of in any downturn. But I think that, that trading up has been and the flight to quality has been a trend that was already underway prior to the pandemic. And again, I think it's - I think large growing companies kind of recognizing where - what the future of office is and its collaboration and its culture. So they are trying to prioritize and they are prioritizing that new cooler interesting space that their employees are excited to come back and be together. And that was before the pandemic, and I think it's absolutely will be after the pandemic.

Great. Thanks a lot.

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

I want to thank you all for your time this morning and continued interest in Cousins Properties. If you've got any questions, always feel free to reach out to us directly myself, Gregg Adzema or Roni Imbeaux we're always here to help and answer any questions that we can. I hope everybody has a great weekend.

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