Good day. And welcome to the Cousins Properties First Quarter Conference Call. All participants are currently in listen-only mode [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. Please also note that this event is being recorded. I would now like to turn the conference over to Pam Roper. Please go ahead.

Good morning. And welcome to Cousins Properties’ first quarter earnings conference call. With me today are Larry Gellerstedt, our Chairman and Chief Executive Officer; Colin Connolly, our President and Chief Operating Officer; and Gregg Adzema, our Chief Financial Officer. The press release and supplemental package were made available on the Investor Relations Page of our Web site 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. 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 variety of risks and uncertainties and other factors. 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 press release issued 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 Larry Gellerstedt.

Thanks, Pam, and good morning, everyone. The current economic recovery will celebrate its 9th anniversary in just a few weeks, marking the second longest span of growth and expansion in recorded U.S. history. As the nation approaches this significant milestone, capital markets have begun to experience increased volatility. And for the first time since 2014, the 10 year hovers around 3%, putting pressure on REIT equity prices. While the macro economic factors dominate global headlines, a different story is unfolding in the Sunbelt; business and consumer confidence remains very positive; office users are growing their footprints; more companies are migrating to the Sunbelt; and the new supply remains in check. As a result, well located Class A office spaces in high demand and our teams on the ground are busy as ever. To highlight, let me walk you through the first quarter results. Overall, the Company delivered acclaimed $0.15 of FFO per share during the quarter, while posting positive leasing rent roll-up and same property NOI results to start of the year. In addition, the team executed 330,000 square feet of leases in the first quarter, including several key renewals. The solid effort on the leasing front reduced our near term expiration exposure, which is now just 11.3% through 2019. More importantly it further upgraded our referral with average in place rents across the portfolio now 6% higher compared to this time last year. While these are terrific numbers for any quarter, I want to specifically highlight the consistency of these strong results during this cycle. For the 16th consecutive quarter, Cousins has achieved positive cash rent roll-ups with eight of these quarters posting double digit growth. Even more impressive is our same property performance with 25 straight quarters of positive NOI growth. Certainly, we’ve enjoined the extended tailwinds that…

Thanks, Larry and good morning, everyone. I’ll begin my remarks today with a few of the key operational and leasing highlights for the quarter and then provide an update on each of our markets, as well as few updates on our development activities. The Cousins team is off to a great start this year, 930,000 square feet of new and renewal leases in the first quarter at exceptionally economics. As the portfolio is 93.9% leased with modest near-term expirations, this was a terrific performance given our limited available inventory. Second-generation net rents were up 35% on a GAAP basis and 19% on a cash basis with each of our five markets posting double digit growth. This quarter's rent roll-up was the highest in more than two years, and highlights the strength of our team and our Sunbelt office portfolio. While we are particularly pleased with this quarter’s leasing results, we expect our average run rate to generally be in line with our historic performance, which has averaged approximately 10% since we closed the Parkway merger in the fourth quarter of 2016 with variability from quarter-to-quarter based on the particular mix of leases. Moving on to our markets, Atlanta continues to perform exceptionally well. According to CoStar, Class A net absorption across the metro area was approximately 990,000 square feet, which is nearly 70% increase in activity compared to the previous quarter. Importantly, Buckhead, Midtown and the Central Perimeter, all submarkets are focus for Cousins, posted positive results. Consistent with the overall market, our 6.6 million square foot Atlanta portfolio had solid quarter with the team executing over 73,000 square feet of leases. At quarter end, the portfolio is 91% leased with a significant improvement in occupancies from 84.9% to 80.7%. This increase was largely driven by WestRock moving at NorthPark…

Thank you, Colin. Good morning, everyone. I’ll begin my remarks by providing an overview of our financial results, including same property performance. Then I’ll move on to our capital activity and its impact on our balance sheet, before closing my remarks with an update of our 2018 earnings guidance. As you could tell from Larry and Colin’s remarks, we had a solid first quarter. Property level performance was outstanding, and we closed several large transactions that we believe will generate significant value for our shareholders. Overall, net income was $0.04 per share and FFO was $0.15 per share. Within our same property portfolio, which comprises approximately 90% of our total NOI, year-over-year cash NOI was up 9.4%, driven by 8.1% same property revenue growth. These are powerful numbers. And there is no doubt that office fundamentals in our markets remain healthy. With these numbers benefited from a low prior year comp. During the first quarter of last year, several large customers within our same property portfolio received approximately $2.2 million of free rent that has since burned off. Adding this free rent back to last year's first-quarter numbers, reduces same property NOI year-over-year cash growth to 5.4%, a better indicator of our current run rate. That being said, we were fully aware of this free rent when we provided 2018 same property guidance and we matched our same property expectations for the first quarter. Looking forward, we still anticipate achieving our full year 2018 guidance of between 2% and 4% GAAP NOI growth and between 3.5% and 5.5% cash NOI growth. We also increased our quarterly dividend during the first quarter by 8.3% to $0.065 per share. It's a safe well covered dividend based on a conservative FAD payout ratio that has been below 70% for the past seven years.…

[Operator Instructions] Our first question is from Dave Rodgers of Baird. Please go ahead.

One of the look at one thing, and I guess with regard to leasing, it sounds like there is a lot of leasing demand for new development, larger blocks of space, commitments to new projects. And also you guys were alone, but new leasing volume start the year was weak for office generally, I would say. What's the tenure of those conversations in terms of trying to lease existing space? Do you think the spaces aren't right, do you think there was some choppiness just to start the year that have caused people to pause in terms of their more traditional commitments?

I would start with putting in context where the portfolio sits today at 94% leased, and so that obviously influences the product that we have available to lease. That being said, we still have got some great opportunity in front of us. And I'd characterize the tenure across all of our markets as very strong. And as we indicated in our remarks, we feel particularly good about the availabilities that we have here in Atlanta, both existing as well as some of the space that we’ll get back in 2019. So I think as those expirations get a bit closer, I think the actionability of new leasing on that space certainly will increase. So I don’t think that in terms of the amount of new leasing in this particular quarter is certainly anything to look at from a negative standpoint. And again, I think we’re really optimistic about what's in front of us, the activity that we've got, those for some of the available sites Larry mentioned, but the existing product as well.

I would add that just what Colin has said. The big blocks of space that we have to lease are primarily just becoming available in 2019. And so that's -- the prospect was there and that will begin to move into the time that people will start committing to that space. So I would say it was a quarter that certainly met our expectations here when we looked at both those level of leasing that the portfolio exists in terms of 94%, but also just the timing of some of the expirations of some of the larger blocks we have in the existing portfolio, particularly in Atlanta.

And then maybe moving to the leasing spread comment, I think Colin you made the point of 10%, is what you’re looking for going forward. Larry, I think you said something in your comments about 8% to 10%, maybe below market. Is that 8% to 10% near term or is that how you view the portfolio as a whole moving forward in terms of marking in to market?

Certainly, that 8% to 10% is representative across the entirety of the portfolio. And we would certainly think that the long-term average should certainly reflect those levels. I think quarter-to-quarter you could see some variability depending on the particular mix of leases in any given quarter. But long-term if you were to look at multiple quarter average, we think overtime that should trend in about 8% to 10% range.

Last one from me on the development sounds like you have a lot of activity. You mentioned five specific pieces of land, three you own, two you’re going to buy. When you think about funding that long-term, I know there is no commitment there and so it’s hard to say. But how do you think about that in terms of maybe debt brining in joint venture partners equity and just cash flow if there is a broad thought process, that’ll be helpful?

So as Larry mentioned, we've got several sites that we're looking at and that we're moving quickly toward potentially bringing online. So how would we fund those? There is three pieces with that puzzle. The first piece would be retained cash flow. We kicked out give or take $40 million a year of retained cash flow after servicing the dividend and everything else. So if we were lucky enough to start some of them next year, they would take two, two and half, three years to bring to fruition. So there is $100 million right there in retained cash flow. And then we stated publicly that our long-term goal, in terms of leverage, is 4.5 times net debt to EBITDA. We’ve been running at below that for the last several quarters. The big driver of that was our sale of Orlando and Miami in the fourth quarter last year. We didn't have an immediate use of those proceeds, but we thought it was a good time to sell those assets, so we were sitting on cash. So we have extra capacity actually to take the leverage backup to our long-term goal of 4.5 times. So retained cash incremental leverage to get back up to our goal, and to the extent that we needed more than that, we were to look at what equity was available to us at the time that we needed it. As you’ve mentioned joint ventures are always available, something we try not to use unless our partner bring something to the table other than cash, because we have cash and do they have a land site, do they have an expertise. And then we would look at asset sales and equity issuance depending upon what the respective purchase were at the time.

Our next question is from Blaine Heck from Wells Fargo. Please go ahead.

Just wanted to follow-up on that last question. Are there any pricing details you can give on both the Atlanta and Tempe sites? And then maybe what’s the square footage you guys think you can construct at each of those?

The site that we’ve got under contract in Midtown Atlanta, we could build 400,000 to 450,000 square feet of office space on it. It’s a terrific site, because of its proximity to Georgia Tech and MARTA, and all the activities going on in that midtown market. It’s interesting if you look at that town, really all of the new-build activity has been in that -- this cycle, has been in that southern part of midtown and the site is right in the heart of it. Our team did a remarkable job in getting this site under control, because it had multiple property owners and was required a lot of effort over the last year related to control it. The site in Tempe, which is also a site that has a fair amount of complexity to it, and we’re just thrilled to now have that under control. We could build there, 250,000 feet plus or minus. We will have -- part of the site will either hotel or apartments on it. And so that would be the size of those two different opportunities. You know in terms of pricing, we really don't get into that, the pricing of the land in particular, because those are under contract and we won't disclose that. But I think if you look at us this cycle, we’ve been consistently prudent on when to go on new development. And our optimism on particularly a couple of these office land positions that we have of the five that we outlined is really just based upon existing customer or new customer demand of folks that need extra space or want to be in a submarket that we can put our hands on, and are having discussions with that give us the consistency. We continue to shoot for the mid-8 return in terms of what we look at these developments across our portfolio, cap rates are in the 5.5 to 6, little bit higher and a little bit. We're still seeing a nice spread that we’re able to get between existing cap rates and where we can do the development deal. So that will be the color I could share on those two sites.

Just as a quick follow-up on that. Is it fair to assume that you guys have significant preleasing prospects on each of those parcels or are they more opportunistically in place with the mindset that there are plenty of prospects in those markets?

I would say yes to both. We look at these land things both ways. We look at where we feeling demand from the customers in the markets in terms of where we invest our predevelopment activity. We, certainly at this point in the cycle, don’t anticipate starting any new development without really solid preleasing. We don’t have a set threshold as to what that is. But we are not in any of these cases going out and acquiring a site where we have 100% build-to-suite lease in our pocket and we’re just going to find a site. But it's opportunistic based upon a lot of conversations with folks and demand that we can put our hands on.

And then just switching gears to the AIG space at NorthPark, it's pretty large chunk of space. So I guess when do think they need to make a decision by to actually give them enough time to move out by January next year?

As I mentioned in my prepared remarks, we continue to have conversations with AIG. They are still evaluating their long-term space plans and needs, and looking at their market options. I don’t want to get too far into those discussions and out in front of our customer at this time. But again, it's not a long way off. And so we continue to have those conversations, and we have more to share we will. But again I just want to be careful and cognizant of our relationship with AIG.

[Operator Instructions] Our next question is from Michael Lewis of SunTrust. Please go ahead.

My first question, I wanted to ask about, maybe AIG aside, about the path of occupancy into 2019. And as I look at some of these move outs where you have -- we know about Bain and CDRE. But I believe you have a tenant that's phasing into North Park as well. When it moves to Tampa, you've got the Laser site move out, but I believe Amgen is phasing into space. And then you've got this big gap between occupancy and the lease percentage in Phoenix. So as we look at the path of occupancy from here, should we expect a deep dip with some down time as we head into 2019? Or do you think maybe there is potential with the puts and takes here that it's a little maybe flatter than people might expect?

And as you mentioned, there are a lot of gives and takes there. As you mentioned, we do have some move outs that we discussed in our remarks, the largest being, largest expirations being CDRE and Bain, and totality of that 140,000 feet. But I would remind you, from a Cousins standpoint that is under the 50-50 venture. So as we think about our weighted average occupancy, it’s roughly half of that from an impact, and then the AIG expiration out there. So would be the potential outs. If you look on the other side of the equation, we do have some good move-ins over the course of the year. There is another -- Westrock does have another floor to move in, and we also have additional move-ins from Amgen within Tampa. There is also an occupancy pick up at Terminus with WeWork, SAP out at Avalon. We mentioned a lease last quarter, expansion we did with. So with all those gives and takes, Michael, we would expect over the course of the year from our current occupancy to certainly stay no less than flat. And I think there is an opportunity to tick that up over the course of the year.

My second question is about the same property tax, which is just lot more interesting now that you’ve got the bigger pool has rolled in. There is a lot of talk on the revenue side with the positive rent spreads, and we just talked about occupancy. I wanted to ask about the expense side. It looks like expenses grew about 6.2% year-over-year. Should I assume that that's mostly property taxes and what’s the risk on the expense side?

The 6.2% year-over-year growth in expenses during the first quarter they are being driven by real estate taxes. Real estate taxes during the quarter on a year-over-year basis were up 9.1%. So if you pulled out real estate taxes, the number would've been 4.6%, something a little more, actually test a little bit more. Just to give you a little color behind that, in Austin, real estate taxes were up 12% year-over-year and in Tempi, real estate taxes were up almost 40% year-over-year. What happened in Tempe was we had a [indiscernible] on Gateway Tempe that expired, which is just a tax abatement that expired. So that’s not an indication of anything other than increased taxes but really the [indiscernible] as well. But looking forward, yes, I think that 6% number because of the property tax increases is a decent run rate for the balance of the year.

The next question is from Jamie Feldman of Bank of America Merrill Lynch. Please go ahead.

Can you guys just talk a little bit more about the bucket vacancy, just what the leasing pipeline looks like for Bain and the CDRE space?

Jamie, you’re always first, I am trying to adjust to a question so late in the call from you. But as I’ve mentioned earlier, we feel like the pipeline at this point looking forward to 2019 is very strong. As we’re getting closer to that space being available and coming back, the interest from customers has certainly picked up. We view those as really some of the best space in the entirety bucket and with no other construction underway with re-alliance behind, and so we feel very bullish on that. And there is really a mix of interest from some fairly large users to some really attractive full floor and multi floor options. And it’s really across the sector and we’ve been pleased. Historically, Buckhead has been thought of as really the fire sub market with financial institutions, insurance, real-estate, others and we think quite a bit of pick-up in the technology space in Buckhead, which has been really encouraging to our team.

And then last quarter you gave some really helpful color on where you think rent growth is in your markets. Do you mind walking through that again, or giving you an update?

I would say it's been relatively consistent since the color we gave last quarter. I would bookmark that as at the low end of the spectrum call it 4% at the high end of the spectrum at 8%. Really the leader over the last 12 months has been Charlotte at that 8% level. Offset has been call it the lower end of 4%, it was really just been a function of -- there was so much growth prior to that within offset in that while growth is still very positive. We've seen that trajectory slow just to touch. And then Atlanta, and Tampa and Phoenix has been in that plus or minus 5% range. So it's been still really, really positive and without really any ramp-up in construction, we’re very encouraged looking forward.

And then just finally for Gregg, just thinking about the guidance. So I mean, you guys gave some pretty upbeat color on the fundamentals, incentive demand and leasing. You did have the termination fee and the new termination fee added to the numbers, but your guidance has changed. Were there some offsets to that $1 million? I know you guys have a pretty big share count, so it's hard to really move the needle. But were there some offsets to that positive $1 million or you maybe you guys are still being conservative. Just how do we think about your perspective on keeping guidance where it was?

So termination fees, $1 million it's just the quarter of a penny for the year. So it's not enough to actually move guidance. It's as you’ve mentioned, we have a lot of shares outstanding. It will take more than that to move guidance. There was no offsetting negative to it. It was just too small to move the needle. And in terms of whether our guidance is aggressive or conservative, and we’ve provided what we think is the best guidance for 2018, and it's unchanged. We matched our expectations, as we said during the first quarter, so we've kept our guidance unchanged.

If you were to get any leasing done for the -- I guess the second question would just be, what could move it higher? Or do you feel like the year is pretty baked in at this point?

As I said, we’re very encouraged and enthusiastic about leasing pipeline that’s in front of us. But as we sit here today on April 26th to and not only execute those leases but to build out space and get a move-in material size, to have a material impact on the numbers, just doesn’t leave a lot of time. But we continue to work on operating expenses, parking and things like that that we hope we can continue to find some upside in. And we could be surprised with the upside that we’re able to get somebody who’s got a very short time window to, and can take occupancy this year to do that. But it's really a function of where we sit today in the calendar relative to the year-end.

[Operator Instructions] Our next question is from Jed Regan of Green Street Advisors.

I appreciate Colin you going through the rent growth range of 4% to 8%. I assume that would be on base rent growth that you were quoting. So just curious if you were looking at that on a net effective rent growth basis just factoring leasing costs. Would that be materially different than that? And part of what I’m getting at is just what trends are you seeing in leasing concessions across your market?

We look at both face rent and net effective -- the 4% to 8% range outline would be face rent. I would have characterized net effective rent growth, call it 12 to 18 months ago, to be ahead of overall the increases that we’ve see on face rents, because we did see -- we have seen a nice move down in concessions, whether it’d be TIs coming down and/or free rent starting to decrease. I’d say in terms of where those concessions today, they are fairly steady from the TI perspective, new deals, I would say consistently remains into that $5 a square foot, be a touch higher on new deals, roughly half of that for renewal. And then as it relates to free rent, we’ve seen that some of our markets that go away entirely in Austin, Tampa, we’ve seen that material decrease. So it’s hard really to move it beyond that. And so where we stand today I’d say that 4% to 8% would roughly characterize net effective rent growth as well.

And there was a question earlier on the call about the tenure conversation with tenants. Have you seen any change in that tenure, particularly just given the recent tax reform, anyone seem like your customers base is responding to that in terms of greater leasing activity or growth momentum?

I can’t point to anything where can say we know that this activity we’re seeing is driven by the tax change. I can’t say that we continue to see a lot of positive leasing demand, but we don’t really have any color as to customer that I can point to and say they’re specifically making this decision based upon renewed optimism or increased cash on the balance sheet that they can be a little bit more aggressive. I think it’ll probably take another couple of quarters to really see that if it indeed is driven by that. But I can’t report anything to-date.

And then just last one for me. Have you guys seen any changes in cap rates and values across your markets this year, I guess especially with the tenure pushing higher recently?

Jed, we really haven’t. There is so limited in terms of the amount of really Class A frothy assets that has been in the market over the last 12 months, as you can see by any data source in terms of just the volumes. And the amount of capital sitting on the sidelines have continued to make that there's a lot of vendors and a lot of interest in a pretty frothy pricing at times at least from our perspective, that’s why we have been in the acquisition market for a few years that really seems to drive it. But we haven’t seen any ticks in terms of asset pricing vis-à-vis the change in the 10 year pricing.

Given that frothy pricing, does it make you want to test that market more than you might otherwise with some additional asset sales?

Well, that really was what we do with Orlando and Miami and within the quarter. It was just a looking at a situation and saying we certainly will take a little bit of FFO dilution, and so little on some cash because it was prudent from a shareholders’ perspective to take advantage of that frothy pricing. And we’ll continue to evaluate what that because at the end of the day as these capital markets change and the numbers change, we have to make sure that our banking is adjusting accordingly and we will.

[Operator Instructions] We have a question from John Guinee of Stifel. Please go ahead.

Big picture question probably Larry, it looks like you -- all-in cost for phase one of NCR is about 435 a square. Phase two, looks like it will be about 462 a square. And then your budget at 300 Colorado looks like about 566 a square. Can you comment on total development cost, and also tied that into the two sites you have under contract, and what you think as of today it would cost to develop the office portion of either sites’ total development cost?

I'll really try to tackle the different pieces of that. In terms of NCR the phase one versus the phase two pricing, I’d say a couple of things influence that. Certainly, it was a smaller project, which tends to tick the overall price per square foot up a touch. And there were also some incentives that we were able to receive on the first project. As we look at construction cost as a whole over the last 12 months, our team would tell you that we've seen escalations in the 4% to 6% range. And I think as we move over to the project in front of us at 300 Colorado, it wouldn’t be an apples-to-apples comparison on a per foot basis to the NCR projects here in Atlanta. Certainly, land pricing in Austin is quite a bit higher and that as well there was the TI that we agreed to on a return on cost side deal was partially energy factored into that overall cost. As we look forward though to the pipeline that Larry outlined in front of us, certainly here in Midtown Atlanta, I think replacement cost would be in plus or minus $450 a square foot range, I think Tempe and Dallas, et cetera again urban sites with similar land pricing would be in that range. We do have an additional site corporate center in Tampa as well as 10000 Avalon here in Atlanta. Those are lower density projects in more suburban areas where you’re able to deal pre-cap debt to those projects becoming a little bit cheaper, and I think would have a three handle mid to high three handles as it relates to replacement cost.

And then second, I think in the Amazon sweep stakes maybe your cities include Austin and Atlanta, I’m not sure if there are others. But can you identify for everybody the exact, if that is correct, first and then the exact sites which are being considered within both cities?

We also -- the Dallas markets being considered, which we have a site and as well. In terms of the specific sites that are being considered in city, some cities have made those public and some cities have not. As you know I’m involved in a leadership role in terms of the Atlanta bid and at least everyone involved in our bid is under non-disclosure agreements with Amazon. So I wouldn’t feel comfortable commenting on the specific sites at Dallas and Austin, I am unaware of whether or not those particular bids and make the sites public that they are utilizing.

Ladies and gentlemen, that concludes the Q&A session. And I would now like to turn the conference back over to Larry Gellerstedt for any closing remarks.

Thanks everybody for being on the call today. I hope you can detect our optimism and enthusiasm about where the company is and the markets that we’re doing business in. We’re going to miss Marli. We’ll welcome Ronnie and we’ll look forward to seeing everybody at NAREIT if not before. Thanks.

Thank you very much. Ladies and gentlemen, that concludes this conference call and you may now disconnect your lines.