Good day. And welcome to the Cousins Properties Second Quarter Conference Call and webcast. 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, Executive Vice President and General Counsel. Please go ahead.

Good morning. And welcome to Cousins Properties’ second 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 Website 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 the 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 and thanks for joining us. As we sit here today mid-way through 2018 and deeper into the economic recovery I am pleased to report that business is steady and our teams on the ground are very active. While we continue to monitor our markets for potential caution likes, the U.S. economy keeps pushing forward and office fundamentals and the Sunbelt remain healthy. Supply has stayed relatively in check in our markets and total job growth is currently outpacing the U.S. average by 100 basis points. The total employee employment base is growing at each of our markets; however some of you may have recently seen reports showing a slight decline and office use and job growth in Atlanta. This was driven by temporarily decline and information services jobs earlier in the year. It is not reflective of the activity our teams are seeing on the ground. Over the past year, Atlanta ranks third in the nation in population growth and has added an average of 77,000 jobs annually for the past five years. We are ready for dialogue with the Atlanta Metro Chamber, we believe this decline is temporary and market activity remain elevated with the significant potential for additional corporate relocations on the horizon. Looking forward, I am pleased with where Cousins sits at this point in the cycle. Our balance sheet and capital allocation strategies over the past several years have allowed us to execute on attractive investment opportunities while also putting us in a position to aggressively play off balance should the market conditions solve. While we remain patient as it relates to acquisitions, we continue to create significant value for our shareholders through our development platform, one of Cousins greater strengths. This cycle, we have completed $788 million and new…

Thanks, Larry and good morning everyone. . I’ll begin my remarks this morning with an overview of our leasing and operational performance at the portfolio level and then dive into activity in each of our individual markets. As Larry mentioned, our teams on the ground remain very active halfway through the year as we continue to see positive fundamentals in our core Sunbelt markets. Leasing was strong as we executed 328,000 square feet of office leases across our markets with a weighted average lease term of approximately 10 years. And importantly, new and expansion leasing accounted for more than 70% of this quarters activity. As it relates to volume on our quarter-to-quarter basis, please keep in mind that we have limited available space as the portfolio was 94% leased with relatively modest near term lease expirations in the aggregate. Drilling into the numbers, our lease economics were also realized. Our net rental rate not to be confused with a gross rent was over $32 per foot, a 13.3% over the same period a year ago. This compares very favorably to our Sunbelt peers and highlights the truth equality of our portfolio. Importantly, our weighted average net effective rent was also up 20.7%. So while we had seen some upward pressure on TIs, we are maintaining returns through higher base rental rates. During the second quarter, we rolled up rents on expiring leases 34 2% on a GAAP basis and 13.1% on a cash basis. This marks our 17th consecutive quarter with positive cash rent roll-ups. I am extremely pleased with the consistency in which our team executes and delivers strong leasing at impressive economics quarter after quarter. I’ll now turn to our markets, starting with our busiest market, Atlanta. The city had another positive quarter. Class A net absorption was…

Thanks, Colin and 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 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, very clean second quarter. Net income was $0.05 per share and FFO was $0.15 per share. Property level performance was outstanding as same property NOI was firmly positive. Second generation leasing spreads continued to roll up and leasing volume was consistent with prior quarters. Turning to the second quarter, we sold one non-core parcel of land generating a gain of $2.4 million. We have more non-core land left on the books but not much. The majority of our $19 million land inventory is comprised of the two core office sites Larry mentioned earlier, one in Dallas, and one in Tampa. The earnings impact of this land gain was largely offset by $1.8 million increase in our long term incentive compensation accrual, which runs through our income statement in the general and administrative expenses line item. As has been the case for many years in order to ensure management interest that are in line with shareholders interests. The vast majority of our performance based long term incentive compensation here at Cousin’s is determined by a total return performance relative to the S&L office index. During the second quarter, out total return was 15.5% compared to a 9.3% total return for the index. Within our same property portfolio, year-over-year cash NOI was up 4.1% during the second quarter, driven by 5% revenue growth. Year-to-date cash NOI is up a very healthy 6.7%. We are leaving our full year cash NOI guidance unchanged at between 3.5% and 5.5%…

Thank you[Operator Instructions] Our first question comes from Jamie Feldman of Bank of America Merrill Lynch.

Great. Thank you and good morning. I wanted to go back to your comments or just to talk a little bit more about Buckheads which if you look at your percent leased that’s where more of your buildings – most of your building are that are in that kind of mid-to-high eighties. Can you just talk about the spaces available and how that lines up with the kind of demand you are seeing? Like if there is any kind of mismatch given you don’t have that much space in any of those buildings. So how should we think about that and then, I think some of your peers is had said it does seem like Buckheads getting better here on the leasing front, just some more comments on that?

Sure Jamie, it’s Colin and good morning and thanks for your question. The activity in Buckhead is as we mentioned in our prepared remarks remains very strong in absorption in for the year and has been very favorable here. And as we drill down into our portfolio across Buckhead as a whole we are at just about 90% leased today and activity within our properties is very strong. As I mentioned at Terminus where we’ve got the largest known availabilities as we get closer to those 2019 maturities we are starting to see our pipeline kick up materially. So we are optimistic about our prospects there. Within some of our other assets here within Buckhead, 3348 Peachtree, 3350 Peachtree as you noted those are currently in the mid to high 80s and we’ve got very good activity within those building and are optimistic that they will have some good news to report in the next quarter.

Hi, thanks that’s helpful. And then just broader picture in Atlanta on the supply story, just what are your thoughts in terms of sub-markets that might be little bit more at risk than other, I know you guys have been more active in Midtown building, how do you think about the competitive supply picture there?

Good morning Jamie, this is Larry. I’m still just amazed that in Atlanta how we restraining supply is remained a cycle and in Midtown is to the degree that Atlanta has much of this supply is where you got several projects that are being built that will add just under 2 million square feet of say that make that supply as just below 60% pretty leased and that it continues to be where you see a lot of large technology company interest. So we don’t see any red flags in Midtown where the amount of supply that’s currently being built. I think the question gets to be there is more supply get added and relative to Cousins you won’t see us adding a new supply in Midtown unless we have some significant leasing to support that. Buckhead is got no new supply being ahead, as the Central Perimeter has no new supply being added. And then in North Fulton where we just started Avalon we really are the only new supplier of any significance being added up there as well. So really across the Atlanta market, when I’ve talked to people just travelling around the city as I do – the business environment just in terms of activity whether you are talking to brokers or whether you are talking to other corporate leaders is just very very strong right now.

Okay, great. That’s helpful. And then just my final question, just you had mentioned the higher property taxes, is that – will you get reimbursed for those overtime? Or this is I believe to NOI and margins?

Jamie we can pass through a lot of that property tax increase to our customers but not all. It average in it, expense not build in it depends on market leases obviously, but give or take 65%, 70% can get pass through. So we'll absorb some but some can't get pass through.

Okay. And that will – will that show up more I think year-end benefit?

Well, you'll start to see show up in the third, fourth quarters as I mentioned earlier in our expense numbers. I mean, it will not be a benefit. As I mentioned we've budgeted. We have anticipated large increases throughout the portfolio, but we're just now starting to get these assessments. We just got Atlanta's assessment for example. And at this point of cycle, I mean, municipality is really often time stretching on valuations. So, when that number could move we could be overestimated or under estimated, we'll know in the next quarter and be able to give you a little bit more insight.

Okay. All right. Thank you.

Just to add a little bit more color. At Atlanta, you're seeing depending on the property and these assessments have just come out, but we'll have 30, 60 days or so. You see assessment that very from 30% or 50% up. And so, obviously everybody is going to appeal and push those back as far as they can. But it also just reflects the municipality is being able to see what comps are in terms of buildings that are selling and looking to generate more revenues. It's something that we will stay on to push down as much as we can to protect our shareholders; protect our customers.

Okay. All right. Thank you.

Our next question comes from Michael Lewis of SunTrust.

Thank you. Gregg, you mentioned the internal and external leasing cost you put in the supplement. Or maybe when I take a closer look at that all, I'll answer this question myself. But I wanted to ask about the change in the lease accounting rules. And if you have an idea how much capitalized internal leasing costs you might have to expense in 2019?

Sure. Thanks Michael, it’s a good question. So the commissions that we've laid out are supplemented just at commissions. The internal leasing costs that are non-commissioned based that we run through our income statement right now are give or take about $2 million, so when the accounting standard go into place in January of 2019, all else being equal, you'll see this expense $2 million more, internal leasing cost excluding commissions through our G&A line item.

Okay. Perfect. That's helpful. And the interest expense increase in the guidance. You mentioned there was a combination of things. I imagine interest rates are one of those things. I also had a note to myself if you may repay the loan on Carolina Square, looks like you extended. Are those kinds of the pieces that led to the increase in the interest expense?

No. We've only provided the original budget. We anticipated the short end of the curve going up. But we only have 25%, 28% exposure of floating rate debt. So it's not a big number anyway. But those increases were already in the numbers and the extension to Carolina Square construction was already in our numbers. So it's neither of those two drove that interest and other expense line them up. It's really a combination of a half dozen very small increases here and there. I can't point to one thing specifically that comprise any significant share of that $1 million. But the message I want to send you is it just not because of rising short-term interest rate.

Okay. Got you. And then just lastly maybe for Larry or Colin; I wanted to ask about co-working tenants. I saw in article that we work at four locations in Atlanta, but that expect to grow like to 16 or 20 within a couple of years. And I just wanted to get your thoughts, not just on underwriting co-working tenants, but maybe what you think that means for like the fundamental risk in the market especially if we go into recession how you think of those types of firms being such a big part of leasing activity recently?

Yes, Mike, I'd like to say on this and then Colin can add on. Certainly if we look at our currently portfolio today we obviously just opened our first WeWork location, a Terminus here in the last quarter and they had their grand opening couple of weeks ago. And we've got co-working with several other of the companies out there, and I think it represent about 2% of our portfolio today. And we actually talked about, that's a good deal. We have a special segment on co-working at our board meeting this Monday and Tuesday. And we really look at it on a building by building basis as far as is the way we currently look at it. It just isn't appropriate added to the feature not only in terms of just getting a lease but in terms of making sure that the resources are there on building. We've got elevator, air-conditioning, parking and that we feel like it fits in with the customer base that those particular buildings attract. So, we really look at it on a project by project basis. I think as we look at the industry overall one of the thing that we are starting to get a little bit of experience on is how much of the operations are attracting to our existing customer base. We have not found that to be the case in any of our locations, so that was a question we had a year ago. Secondly, as this business get cannibalized that we otherwise we get from their enterprise customers or do we get spin-out business that maybe we wouldn’t have gotten because of that. We're in the early inning there. We do not experience any cannibalization where we look at a lease and say that one of their enterprise customers then doing that lease would be in lieu of opportunity for us. It's not to say that won't happen. We have experienced some opportunities where we see some customers that we gotten that wouldn't necessarily have come our way just in the traditional sense. No I'm not talking about customers we work. I'm talking about core space of the other folks, some customers that has fund out and grown. So, listen, like everybody else I think we look at it practically as I've laid out in term of strategically how that industry performs whenever the economy turns. I think we'll just have to see and we're just sort of taking one building at a time. We think it's where we had added it. We think it's been really positive feature to our customer base as well as our building features. But we remain cautious in terms of our own approach to it. Colin, you want to add any thing?

Yes. Again, as Larry mentioned it’s about 1.5% of our portfolio and this current economy, this current cycle is very much been a positive. We've had some great experience at Terminus where Mercedes Benz moved their renovation center into that building which has been fantastic for us and the building and they were such a size that wouldn't have otherwise been available lease for us at Terminus. We just had a great experience down at Promenade this quarter. We were customer crew out of their space in Midtown and sign the long-term lease with us. So the current cycle, it's been great. We're obviously cautious as to how that business works in the down cycle, so we're watching our overall exposure, and we're also watching just a market exposure to that space. In Atlanta today, they represent about 1.5% to 2% the Buckhead and Midtown submarket. So we'll continue to keep an eye on that and be very focused and cautious.

Great. Thank you.

Our next question comes from Blaine Heck of Wells Fargo.

Thanks. Good morning. Colin, good to hear about the potential backfill at Northpark, I know it still in negotiation, but can you comment at all on how much downtime you would expect there if all goes to plan and maybe the potential on mark-to-market on that space?

Yes. Blaine, appreciate the question. And our hope would be, obviously we got to build the space and that typically can take three months or so to effectuate that work. And our hope it would be as quickly as our AIG moved out and we can complete the build out. We're confident that lease could start within that time frame. As it relates the mark-to-market and we do believe there'll be positive mark-to-market on that. We never give specifics on any particular lease, but as we said in the past we remain confident that kind of 8% to 10% average, but that will continue to deliver on that. Over quarters it could change depending on the particular mix at any quarter, but we still hope very confident in that over the long term.

Great. That's helpful. And then I just wanted to touch on Wildwood land sale. It looks like you guys still have some land left there, but is that also up for sale and then more generally you guys added some land earlier this year, but are there any markets you guys are targeting to increase your land bank at this point?

We have one parcel left at Wildwood and we don't felt -- do not consider any of the land there to be strategic. So those – that parcel is on the market. It’s the right use and the right price. In terms of our plans to add land as we currently have progress we've got now a great site under control and Tempe right next to our assets there. We are very bullish on what we think the demand will be for that building. Now that we're actually completed this earning process and can get active in the market after Labor Day with that. But our interest on our Peachtree project, land site at Dallas remains good. We are little bit – we're going to be very conservative in Dallas, that's a fair amount of space has been added, but you continue to see large corporate users considering Dallas as a new market. We're really pleased with land and added this site at Midtown like there's NCR, thank that allow us to build up to 500,000 square feet there and we just don't did design but we've got some great interest in it already. We've got a terrific site at Tampa. We now are just beginning to get into the marketing phase for corporate center [bond] and the dynamics there are strong. And we'll look at a site in Charlotte and we looked at several, but everything we'll do we'll patient on the right site, but the goal has been to have a site whether at this cycle or next cycle, there are core holdings of each of these submarkets and so we can have the ability to expand with our customers, the new customers at the right time.

Thanks Larry. And I guess just as a follow-up to that, can you just talk about movement you've seen in land cost and construction cost in general. Whether there are any markets out there or within your portfolio that cost might have gotten too high to just the site construction based on kind of the current market rents?

There's been pressure on construction prices for the last five years throughout the cycle, the multifamily construction who has certainly cost our construction prices across the board, labor as you read this is in tight demand. But as long as you got tailwinds that are lead to strong demand, you're underwriting those construction cost as you underwrite a project and then making sure that you're anchor tenants are able to absorb and pay those. So first we'd they are going up about 6% a year. Right now which is been fairly consistent and we haven't any seen particular change in that pace of construction. But so far I can't – I'm not aware of a deal either at Cousins or just other ones in the market that we're in that could pinpoint and say, we couldn't underwrite the deal because of the construction prices. But I think that's happen some of the multifamily side, but I'm not aware of that happen in our market.

Great. Very helpful. Thanks.

Our next question comes from John Guinee of Stifel.

Great. Couple of questions have been answered, but just out of curiosity and maybe you address this, and I missed it. Regis is in for about 170,000 square feet. Where are they and how does the Regis model -- business model compare with we work? And then just second purely at Amazon HQ2 interest, where does Amazon occupy space in your portfolio?

Hey, John, its Colin, I'll take the first part of the question there with Regis. They are spread out throughout portfolio, I'd say, they are typically anywhere from 25,000 to 35,000 feet type spaces and we've got one at Northpark Town Center here in Atlanta. They are customers of ours down in Tampa Corporate Center. We've got some exposure with them in Downtown Austin as well as out in Hayden Ferry and Tempe. So I think the – obviously the co-working model continues to evolve, and there certainly still some need for that traditional office space, but we certainly have lots of discussions with the parent company there at Regis and we see then continuing to evolve their traditional Regis spaces – traditional Regis locations into their spaces concept and we would expect that to continue.

Okay. And Amazon, where are they located?

So within our portfolio John, they're here in Atlanta. At Terminus 200 they've got 50,000 feet with us there. And then they are also a large customer at Hayden Ferry. They started in that project probably five years ago at roughly 25,000 feet and today they are upward to the 100,000 feet, have been growing there consistently over time.

And then the last question, you would address a little bit of this, but we noticed that Austin, your development looks like about $560 a square foot. What's driving that to that level? That's a big number almost anywhere.

John, you've got sort of all of the above driving that. You got land prices, they've gotten very expensive. Construction cost there are obviously under lot of pressure, probably more so than other markets we're in, and you got a lot of supply being added. So it just sort of combination of all of those factors. We open Colorado Tower in 2013 I think, a $330 a foot. So it does show to make your point, it's all those very sensitive that has gone together, they have it in Austin. The amazing story is as Colin said, with all those things going you still got a lot more absorption than new supply and there's the cost being stuff that the customers are willing to pay for.

Great. Thank you very much.

Our next question comes from Jed Regan of Green Street Advisors.

Hey, good morning, guys. Maybe just a follow-up to that question from John, some 10,000 Avalon is going to cost almost $400 per foot to build, which we implied after achieve historic price per pound for suburb Atlanta that get an attractive development return there. Could you just talk a little bit about kind of what gives comfort on the risk return profile and what kind of market rents you think you might achieve on that project?

Yes. I think, Jed, its Colin. We continue to be very bullish and excited about Avalon and you mentioned that the construction cost on 10,000, which is a little bit higher than what we had on 8,000 and that's primarily been driven by some of the topography issues on that site has driven the parking cost up a little bit higher. But as we look at the market and certainly what we've been had experienced at both the recent leasing at 8,000 Avalon to bring that up to 100% and at least that we did was with access. We're certainly achieving kind of bucket type rents, north of $40 on a gross basis. So we feel like the investment return is very compelling. We obviously always focused on what our exit could be. And you're right, that is a big per account for project outside of the Promenade here at Atlanta which given us a lot of comfort. As we've really taken a deep dive on a lot of these highly amenities mix use projects at these suburban, urban, locations, seen something legacy in Dallas, at Domain and Austin. And as you look at those particular submarkets and projects where we've seen very similar rents to what we were achieving at Avalon. You've seen those access, very significant access support that underlying basis going in. So we're very excited about what's in progress there.

Okay. That's helpful. And can you just remind us what OpEx might be, plus taxes of that allocation?

It's kind of $9 to $10 a foot.

Okay. And then can you remind us also the background of the relationship with Hines there, and why it makes sense to do that project through Venture rather than a 100% on your own?

Hines had site under control and brought the opportunity to us to consider being their equity and leasing partner on it. We found that to be very compelling. It’s the same structure Jed that happened at Victory at Dallas, Hines control the site. They had not closed on either of these sites. And because of our long relationship we had with Hines that goes back to 191 Peachtree, we formed a similar partnership within there. And in both cases they had the land under control and our skill set are very complementary and it work really well at 8000 Avalon and we're very comfortable of working with them. What are the interesting things to make on that your question with Colin has been really been that at Avalon and I think its very similar to what the folks are experiencing at the Domain and Austin really from a customer standpoint the pricing, the rent is really not where the pressure point is and does discussions, the level of customer you're talking to wouldn't be looking at as they already have said for their businesses paying that to be a part of that type of environment and gather return many ways with their employee recruitment and retention. So its really – as one of those thing is we often said, you sort of have to go see these how your urban amenities for urban locations to get it at least that's what it took me.

Okay. Thank you. Appreciate that. One last from me. You guys mentioned some new build to suite opportunities in the opening remarks, can you talk about which markets are they concentrated in and then the size of those requirements?

Well, I can't get into specific one, but we do can see really in the Atlanta, Charlotte and Austin market, you see a fair number of relocations with Atlanta, Charlotte in particular sort of Northeast, Midwest corporations that for various reasons or looking at a relocation. Obviously, an Austin and Tempe, it's primarily from the West Coast that we're seeing this relocation. And Dallas is little bit above. They're mid country location, really allows them to play on both sides of that. So it's fairly broad based. We have seen in the last six to 12 months the Atlanta prospect list of those corporate re-allocation [grow] some. Don’t have any color on how many might materialized, but based on past experience that will be optimistic that are few them would and helpfully we'll be able participate, but you never know..

Okay, great. Thank you.

[Operator Instructions] Our next question is a follow up from Jamie Feldman of Bank of America Merrill Lynch.

Great. Thank you. Colin, I just wanted to follow-up from a conversation we had at our -- meeting. You talked about Cousins thoughts on potential new markets to expand into and what their characteristics would be in terms of potential population growth and workforce -- employable workforce. I'm just curious, as you guys think about more, is it realistic to think you will expand in the more markets in the next year or so? Or was this more just kind of thinking about long, longer terms?

Jamie, this is Larry, and you been great following our company for few years now. How [Lockton] and we are to have an very clear strategy plan that shows where we want to go over the next five to seven years. And that's really was the best in the focus of our strategic plan update that we did over the last 12 month was recognizing this isn't probably going to be an opportunity time to go into new markets that we find attractive. It is a very opportunistic time to study those markets and get familiar with players and watch through the customer basis and see who is the potential competitors are. So I think you're point is right, that we see a line of sight of going into one of these market. As the customer relationship that ask us to go and there are unique situation. Now that opportunity we think will present itself when the market goes off a little bit and we can be strategic and make some good purchases. We also are very driven by our model which is not just go in and buy building, but see a pathway to make it sure we can put our team, full team in place, full time to build that Cousins brand.

Okay. That's helpful. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Larry Gellerstedt for any closing remarks.

We appreciate everybody being on the call this morning. We hope you having a good summer and we look forward to talking to all next quarter. If you have any questions in the mean time, as always please give any us a call. Thank you.

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