Cousins Properties Incorporated (CUZ) Earnings Call Transcript & Summary

Good morning. I'm Colin Connolly, President and Chief Executive Officer of our company, Cousins Properties. Welcome to the 2020 Annual Meeting of Stockholders, and thank you very much for attending virtually today. This marks our first virtual annual meeting, and we are appreciative of the technology to conduct our business, while adhering to social distancing guidelines in this time of COVID-19. The agenda for today's meeting is comprised of the formal business portion of our annual meeting, where we will review the proposals in our proxy statement, which consists of the election of Directors, an advisory vote on executive compensation and the ratification of the selection of the company's auditor. We will also answer questions related to these proposals before formally closing the polls to further voting and announcing preliminary results of the voting. I will then provide a brief update on our business and key strategic initiatives underway at the company. First, let me introduce the other members of our Board of Directors who have joined us virtually for this meeting as well: Larry Gellerstedt; Taylor Glover; Charles Cannada, Bob Chapman; Scott Fordham, Lillian Giornelli; Kent Griffin Jr.; Donna Hyland; and Dary Stone. I also want to thank Larry Gellerstedt, who proceeded me as CEO and Lead Independent Director, Taylor Glover. They will be retiring from the Board after their many years of leadership. Beginning in 2009, they orchestrated a historic turnaround of Cousins and rebuilt the company into the powerful franchise once again. During Larry's tenure as CEO of Cousins, the company experienced tremendous growth, while delivering strong returns for shareholders, outstanding service for customers and meaningful engagement in our communities. Taylor has been a steady and trusted voice in our Board room. Personally, they have each been a great mentor and friend to me. Thank you both. With that, I will now call our 2020 Annual Stockholders meeting to order, and I would like to introduce Pam Roper, our Executive Vice President, General Counsel and Corporate Secretary, who will conduct the formal portion of today's meeting. Pam?

Thank you, Colin, and let me echo our appreciation for the shareholders and guests in virtual attendance today. We will now conduct the formal business as set forth in the notice of meeting and proxy statements, which was mailed to all stockholders of record as of February 21, 2020. Cousins shareholders as of the record date were sent notice of the annual meeting on or about March 11, 2020, along with the proxy statement and request for proxy by the Board of Directors. The notice of annual meeting also stated the date, time and meeting purpose. We also provided a notice of change of location dated March 31, 2020, in which we announced the change of the meeting format to a virtual meeting and provided the web address for participating in today's virtual meeting. Our inspector of elections has certified that a majority of the company's shares are represented by proxy at this meeting. And therefore, we have a quorum to conduct business, and this meeting has been duly called to order. For all stockholders who have entered the virtual meeting with your control number, you may have previously submitted your proxy or you might have elected to vote today. To vote or submit questions, please log in as a stockholder by entering the 16-digit control number you received with your proxy material. If you have voted your shares prior to the start of the annual meeting, your vote has been received by the company's inspector of elections, and there is no need to vote those shares during the annual meeting, unless you wish to revoke or change your vote. To vote now, please click on the vote here button on the screen. As outlined in our rules of conduct, which are posted on the web portal, we will answer questions only on the proxy proposal. If you have entered the meeting using the official number, you may now submit questions through the web portal. While we permit time for shareholders who haven't already done so to complete their voting, I'd like to remind you that some of the statements made at this meeting may be considered forward-looking as defined in the federal securities laws. These include statements about beliefs and expectations or predictions of our future results. Please keep in mind that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to be different. We refer you to the information contained in our 10-K, 10-Q and 8-K reports and their amendments and exhibits, which have been filed with the Securities and Exchange Commission, and to our website, www.cousins.com, where you can find supplemental information, including reconciliations to GAAP. In the proxy statement for this meeting, the Board of Directors propose that the shareholders vote on 3 formal business matters. First, the election of 8 Directors who were identified in our proxy statement, and all of whom are present at this meeting via telephone. Second, an advisory vote on executive compensation. And third, the ratification of the selection of Deloitte & Touche LLP as the company's independent registered public accountant for the fiscal year ending December 31, 2020. There being no questions having been submitted through the web portal related to the proposal. The polls for voting are now closed. Our inspector of elections has certified that the majority of votes cast have been voted in favor of each proposal, so each of our nominated Director has been elected and the other proposals have been adopted. As noted earlier, the voting results announced today are preliminary. The final voting results will be included in an 8-K to be filed with the SEC later this week. This concludes the formal portion of our 2020 Annual Shareholder Meeting, which is now formally adjourned. Now I'd like to turn the meeting back over to Colin Connolly, our President and CEO, to provide you with an overview of 2019 and beyond.

Thank you, Pam, and many thanks to everyone for joining us today, which again marks our first virtual annual shareholder meeting. These are undoubtedly extraordinary times. As our industry, communities and country navigate unprecedented circumstances, we are truly indebted to the health care workers across this country who risk their lives every day to help the nation battle COVID-19. At Cousins, the health and safety of our customers and our employees is our top priority. Since early March, Cousins has been closely monitoring and following the CDC's guidelines to help protect the health of our teams, customers and communities. Importantly, we have not had a Cousins employee to date test positive for COVID-19. We are thankful for that. Our employees who can work from home have been doing so since March 13. We have also adjusted our operations to ensure the safety of our essential property employees as our properties all remain open to support our customers. Additionally, as communities fight COVID-19 on many fronts, Cousins has committed $900,000 from the Cousins Properties foundation to support and established nonprofit organizations fighting the virus on the front lines or helping those who are economically impacted by it across our geographic footprint. I'm so proud that in handling this specially difficult situation, Cousins has responded calmly and with grace. We have been able to respond quickly because we have planned and prepared operationally and financially for disruptions for many years. We have assembled a trophy portfolio in the most resilient submarkets throughout the Sun Belt and have taken a disciplined approach to our capital allocation. Let me highlight a few financial metrics. First, our balance sheet is exceptionally strong with low leverage and a liquidity of approximately $1.1 billion, as we announced on March 31. Second, our trophy portfolio was 93.6% leased, and our development pipeline was 80% preleased at year-end. Third, we entered this period as a leaner organization with G&A as a percent of enterprise value at 42 basis points for the year ended 2019, which is one of the lowest in the office sector according to Green Street Advisors. Lastly, our dividend is well protected with an FAD payout ratio of 67% for the year ended 2019. While COVID-19 inevitably will present some challenges to the commercial real estate sector, which many of us are still navigating, Cousins is extremely well positioned for long-term success. Across all areas of our business and each of our markets, 2019 was an extraordinarily productive and strong year for Cousins. Our merger with TIER REIT, which closed in June, transformed the company. The combination of the 2 complementary companies create a deep preeminent Sun Belt office REIT with a best-in-class balance sheet. As a result of the merger, we added 9 operating office properties containing 5.8 million square feet of space, 2 office properties under development that are expected to add 620,000 square feet of space upon completion and 6 strategically located land parcels on which up to 2.5 million square feet of additional [Audio Gap] building in downtown Austin. The company also continued the development of Domain 12 and Domain 10 in Austin that were acquired in the merger. Additionally, we engaged in a series of exciting transactions with Norfolk Southern Railway company. As part of the transactions, cousins is currently developing their new headquarters in Midtown Atlanta and will recognize approximately $52.5 million in associated fees through 2022. In addition, Cousins purchased 1,200 Peach Street in Midtown Atlanta from Norfolk Southern for $82 million or $222 per square foot, well below replacement costs. Later in the year, we signed a 561,000 square foot lease with Truist Financial Corporation for their new corporate headquarters at the iconic Hearst Tower and Uptown Charlotte. The lease included an option for Truist to purchase the building for a gross price of $455.5 million, which we just closed on March 31. We also purchased the remaining 50% interest in Terminus Office Holdings from our joint venture partner in a transaction that valued the properties at $503 million. As we look ahead, I am optimistic about our future, even amidst the tough circumstances facing our customers, our families and our country. I am confident we will weather the current economic disruption with our differentiated strategy in a trophy portfolio in the best Sun Belt markets. We have taken steps over the years to create one of the strongest balance sheets in the office sector. Even in today's sharply lower stock market, our leverage ratio stands at just 30%. I want to thank our hard working, talented and agile teams for their dedication and excellent work. I would also like to take a moment and recognize our senior leadership team on the call with us today: Gregg Adzema, our Chief Financial Officer; Pam Roper, our General Counsel; John McColl, our Executive Vice President of Development; Richard Hickson, our Executive Vice President of Operations; and Kennedy Hicks, our Senior Vice President of Investments. Before closing my remarks, I would also like to thank our shareholders. We appreciate your continued support and loyalty. On behalf of the entire team at Cousins, it is an honor to work for you. Subject to the limitations outlined in the rules of conduct by Pam, I will entertain general questions from stockholders. Pam?

All right. Let's give it a minute and see if questions are posted. Again, our apologies for the technological difficulties, we -- as with many companies, we were new to this virtual format, and I think a lot of companies are on these lines right now. Colin, I'm seeing no questions, so I'll hand it back to you to close.

Well, with no further questions. Again, I would like to thank you for your participation in today's virtual meeting. And to echo Pam's comment, we apologize for the disruption in the virtual meeting. But again, thank you for your interest in Cousins.

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