Good morning, and welcome to the Cousins Properties Third Quarter Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Pam Roper, General Counsel. Please go ahead.

Good morning, and welcome to Cousins Properties' Third 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 a 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 supplemental package posted yesterday, and a detailed discussion of some potential risk 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. Cousins continues to execute exceptionally well in 2018, completing the third quarter with strong financial results and healthy activity on both the leasing and investment fronts. The team executed 485,000 square feet of new and renewal leases at economics that represented an 18 straight quarter of positive rent rollouts, a particularly impressive accomplishment for an operating portfolio more than 94% leased. Equally important, Cousins made significant progress on the investment front. We delivered the second phase of NCR on October 1. NCR has already begun occupying the new tower, and is expected to complete the consolidation from their remaining Atlanta offices by the end of next week. Of the 10,000 Avalon, we have built a robust leasing pipeline and are in current negotiations, which would bring the property to 40% pre-leased. In Austin, we have formally added two floors to 300 Colorado, bringing the total square footage to 358,000 square feet. Construction is on schedule to begin in December. In addition to these developments, we have been steadily adding to our land bank. Earlier this month, we closed on our land assemblage at 901 West Peachtree Street in Midtown Atlanta, where we could potentially develop up to 470,000 square feet of office. This quarter, we plan to close on our site in Tempe, 100 Mill, and finalize our joint venture agreement with Heinz to potentially build up to 280,000 square feet. With the addition of these sites, along with our Victory site in Dallas and our fifth pad at Corporate Center in Tampa, we now own or control sites that could accommodate up to 1.4 million square feet of new Class A office space. These investment milestones, in addition to another quarter of quality earnings and operating results, provide an excellent snapshot of how…

Thank you, Larry, and good morning. I'm honored to lead Cousins Properties for the next chapter in its long and proud story. I want to thank our Board of Directors for the opportunity, as well as their unwavering commitment to our Company and our shareholders. I also want to take a moment to thank Larry. We've been working together for over seven years; and during that time, he's been the ideal mentor for me personally and a transformational leader for the Company as a whole. I enjoy our work together every day, and I look forward to our continued collaboration in his role as Executive Chairman. Lastly, to my Cousin colleagues, it is a privilege to be on your team. You're relentless focus on creating value for our shareholders inspires me every day. We have an exciting future, and I'm proud to be part of that with you. Looking forward, I could not be more excited about the opportunity for Cousins. We have a clear and compelling Sunbelt strategy that will continue to benefit from the ongoing migration of jobs into the Southern US and the rapid urbanization playing out in our target submarkets. I'm confident that our trophy portfolio, rock solid balance sheet and best-in-class team positions us well to go compete and capitalize on the present and future opportunities. Turning to the quarter, our results were strong across the board, with solid contributions from each of our five Sunbelt markets. Leasing activity was positive in all of our markets from 48,000 square feet in our smallest to 226,000 square feet in our largest market. Net effective rents came in under our one-year run rate, but this is purely a result of a higher percentage of this quarter's leasing occurring in some of our lower rent profile properties. Rent…

Thanks, 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 balance sheet before closing my remarks with an update to our 2018 earnings guidance. As you could tell from Colin's remarks, we had a solid, very clean third quarter. Net income was $0.05 per share and FFO was $0.16 per share. Overall, the performance metrics that matter the most remains strong as same-property NOI was firmly positive, second generation leasing spreads continued to roll up, and leasing volume exceeded prior quarters. As has been the case over the past couple of years, our long-term incentive compensation accrual, which runs through our income statement in the general and administrative expenses line item, was lumpy during the third quarter and below recent trend. As a quick reminder, in order to ensure management's interests are aligned with shareholders' interests, the vast majority of our performance-based long-term incentive compensation here at Cousins is determined by our total return performance relative to the SNL Office Index. During the third quarter, our total return declined by 7.3% compared to a decline of 1.7% for the index, and the accrual was adjusted downward accordingly. Within our same property portfolio, year-over-year cash NOI was up 4.4% during the third quarter, driven by 5.1% revenue growth. These are terrific numbers, and they marked the 27th consecutive quarter of positive year-over-year cash NOI growth, with increases averaging 6.9% over the seven-year period. I'm confident this ranks us at or near the top of all office REITs. It's a testament to the underlying cash flow power of our Sunbelt markets and our urban assets. Turning to our balance sheet, as of quarter end, we had nothing drawn on our $1 billion unsecured credit facility, and…

[Operator Instructions] The first question comes from Jamie Feldman with Bank of America ML.

Great. Thank you. Good morning and congratulations to everyone for the next stages of your careers. So, can you talk more about the development sides and just kind of some of the conversations you're having for -- I think you mentioned the potentially 1.4 million square feet you guys could build? Just how should we think about potential timing of anything actually getting started?

Hey, Jamie. It's Collin, and thanks for your question. We do, as Larry outline, have some terrific development sites, and importantly, as you look across, very representative of our Sunbelt strategy with terrific site here in Atlanta; one out in Tempe that we hope to close shortly in Uptown Dallas and at Corporate Center IV down in Tampa. So our team is actively working through the predevelopment for those various projects. I think the earliest we could actually break ground on any of those would be likely March of next year, but our focus here really is to have those sites be kind of demand-driven sites, and we are pleased and optimistic with some of the conversations that we've got taking place with potential anchor customers. We'll keep working that process hard as we work through the predevelopment phase of the projects.

So would you say there's any that are kind of imminent like your pretty far along in discussions or not necessarily?

Look, I think we're -- as we look toward 2019, we're hopeful that -- and optimistic that we'll be able to get another project out of the ground with some pre-leasing and good anchor customers. I don't have anything to report today that's imminent, but I would say we are in discussions with tenants and potential prospects across all of those buildings. They're all in fantastic locations; in many cases, adjacent to some of our existing properties, and so we're fortunate to be able to have discussions with some incoming folks to the market but we're also in active discussions with some of our existing customers who've got some growth need. So we'll keep working at it and hopefully we'll have some good news to share for you as we roll into 2019.

Okay, thanks. And then I guess just sticking with development, there's been a lot of press around The Gulch project. Can you talk about what you think that could mean for Atlanta, and if you guys would have any opportunity to get involved in that or even in any opportunity zone activity in Atlanta?

Yes. Good morning, Jamie, and thank you for the comments. The Gulch is an area in downtown Atlanta that has basically been surface parking lots for decades. It's almost a 40-acre site immediately adjacent to State Farm Arena, Mercedes-Benz Stadium and the Georgia World Congress Center. CIM is the developer and they have a development agreement that has been -- being vetted by City Council to be approved, and that process has been going on in the last as couple of months, and I would expect it to be resolved one way or another in the next month or so. So, it's sort of up in the air as to whether or not City Council brings it forward with a approval or not, it's been a fairly contentious debate that's been going on on it. We certainly think just for the city, it would be a terrific thing, the development would really energize this part of downtown Atlanta with the developers talking about a mixed-use complex that probably retail and residential would be the initial component of. So, we certainly are pulling for it to happen. One small note just for clarity is, go back to the 1970s, Cousins has air rights and the footprint of that development that go back to when Tom Cousins developed CNN Center back in the 70s. So we would assume that if the project is approved by Council that those air rights would be something that the developer CIM would likely want to purchase as sort of part of their land assemblage. Nothing's has been finalized or negotiated on that. It won't be a significant number relative to Cousins, but I just wanted to point that out.

Okay, that's helpful. And how do you think about it from a competitive supply -- office-supply standpoint?

Well, I don't think there would -- the conversations we've had with CIM and we've had several just regarding our air rights, and I've had several just in my civic capacity as a -- leading a couple of business organizations in town. It doesn't appear to me that their initial forays in terms of what the development will leave with would be office. And also, I would just add that this particular site, one of the reasons it's been underutilized for so long is that sits 40 feet below the street grid, and so they will have three or four years' worth of work to do just to create the platform 40 feet in the air to begin to have a developable site, which is the reason the cost of that platform is really the need -- the reason that they're working to get some tax allocation, district financing and sales tax increment financing to finance that. So I don't think in the foreseeable future that it would be an office-supply competitor just because it will take a long time for to -- for the platform to get in place. Hello?

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

Thanks. Good morning. Just a follow-up on Jamie's question, and specifically on Eighth and West Peachtree site, just wanted to get your thoughts on Midtown Atlanta in general. I think, it's been a very strong market, but seems as though there are a number of projects that are either under construction there, or getting ready to launch. So, how do you feel about commencement on that project, given the potential for supply issues? And then, do you have any more color on demand that you can talk about, especially given the recent reports around BlackRock's intended move down there?

Sure, Blaine. It's Colin. As we sit today, there is about 1.7 million square feet under construction in Midtown, and that's about 65% pre-leased. And certainly, we've got a terrific site. There are some other developers that are actively trying to put together their own projects. We feel really good about the location of Eighth West Peachtree, because it's pretty unique in the market to have the proximity that we do to both MARTA and Georgia Tech. So we think that bodes well. I think, ultimately the market is going to be focused on in the capital markets for real demand kind of driven leasing -- demand-driven development, as I said earlier. You touched on one rumored potential prospect out there. There are several others. I'd say, the Metro Chamber is very active right now, with some potential -- external kind of new in migration customers, which again, I think, speaks very well to Cousins' overall strategy is a Sunbelt urban office company. And so, the migration that we see from North to South, I think, continues to play out. And Midtown Atlanta is, I think, very well positioned to be a key beneficiary of that. So, there are a lot of prospects out there. We'll see how those conversations go. But at the end of the day, we feel like our site is very well positioned to go compete in the marketplace.

Very helpful, should be interesting. And then, we noticed a couple of interesting shifts someone would have touched on in the supplemental from the second quarter to third quarter. So in looking at your yearly expirations on Page 20, it seems like the 2020 expiration for the square footage didn't change much, but the percent of annual rent increased quite a bit and the rent per square foot increased from $32 to $41. So, that's first. And then secondly, on the top of the -- top tenants page, it looks like Bank of America's annualized rent also jumped pretty considerably. I'm guessing that has something to do with the expansion in renewal late last year, but just wondering if those were linked, those two. And I guess what was going on behind this?

Hey, Blaine. It's Greg. Good morning.

Good morning.

As I've mentioned in my prepared remarks, we have now added to the supplement in-place gross rents and we've rolled that through the supplements of this page that you're referring to, is now using gross rents versus previously using net rents, that's why you're seeing the jump in the numbers.

Got you. Makes sense. Thanks.

The next question comes from Michael Lewis with SunTrust. Please go ahead.

Thank you. Could you guys talk about some of the changes in the active development pipeline? Not just 300 Colorado, but it looks like the costs are down slightly for 858 Spring, 10000 Avalon, Dimensional Place. Is there anything notable to talk about there?

Hey, good morning. It's Gregg again. Michael, on that page, I've mentioned in my prepared remarks, we're now including numbers that are excluding capitalized costs. So that's why you've seen a small reduction in the numbers on kind of all the projects on that as we're excluding those capitalized costs; the largest of which is capitalized interest. So these are cash numbers now in the schedule.

Okay, understood. Thank you. You talked about the long streak of the impressive cash rent spreads and NOI growth, and I realize you're giving kind of limited insight into 2019 at this point. But when I look at the market rent growth in your core markets over the last five, six, seven, plus years, whatever the average lease term might have been, it looks like you would have pretty good confidence of continued strong rent spreads for the next several quarters to go. Is that kind of fair? Could you comment on that?

Sure. So, the number that we've provided over the past year or so, where we've got in-place rents that are 8% to 10% below market, remains the case today and going into '19. So you'll see that continue to run through our same-property portfolio in '19. We're not seeing any weakening of fundamentals. Fundamentals remain strong in our supermarkets. So from that perspective, again, we're not providing '19 guidance, we will as we always have in February, but the underlying assumptions behind that guidance remains strong.

Okay. And then lastly for me, again, not to push for any guidance, but when I look at the low dividend payout ratio and you should have some growth with development deliveries on the way in your income. Could we start to think about over the next few quarters? I realize the Board will look at the dividend frequently. But are you bumping up to where you think there may be an increase there and may be a material one coming up on the horizon?

Well, our dividend is ultimately decided by our Board. So I would never want to get in front of their decision. But we have increased the dividend in the first quarter of every calendar year for the past several years. And as I've just mentioned, the fundamentals of the business remains solid. So, I would see no reason why that would continue. But again, I -- the worst thing I could do would be to get in front of a dividend increase, which is ultimately decided by our Board.

Of course. Okay, thank you.

The next question comes from John Guinee of Stifel. Please go ahead.

John Guinee here. Thank you. First, Larry, we are truly going to miss you. I do want to make one correction though to your comments. Cousins was, I think, the worst office readout there when it came to excess leverage, excess land and excess disparate development. You were in a league of your own in 2009. Second, and this is for Larry, do you think you have enough land? I mean, you're up to one good site in each of your markets, but that's sort of putting all your eggs in one basket. Is that enough?

John, first of all, thank you for your comment, and I look forward to not having to hear your name mispronounced consistently on these earnings calls. But trust me, with my name, I'm used to having the same problem. I think, we stated that 2% to 3% is the range of what we need. And I -- we're looking at a site that I'm optimistic about to add in Charlotte that I would hope may become actionable sometime next year. And we continue to look at some sites in our other key markets. So, I would hope that we find opportunities to continue to selectively add to the total we have now versus considering what we have now to be you know the number. The thing that I can -- looking back on it, we were just weren't in a position, as a company, to really fund [indiscernible] sites in these key submarkets. But we are now and we want to have them so that we can continue to offer growth for existing customers and inbound customers. And so, we -- I would expect that the team would have more action on sites in the coming years.

Okay. And then, Colin, congratulations first.

Thank you.

And then, as you know, Larry's son is involved in WeWork. So Larry is not allowed to opine on this. Colin, do -- you have a lot of leases out with Regus; I think, you've got some out with WeWork, which model do you like better and why?

John, it -- we do have leases with both groups. I think, in aggregate, we probably have 115,000 [ph] or so with Regus, and that comes in really two different forms. They're traditional Regus model as well as the Spaces model. We just opened our first WeWork store over a terminus in the early part of this year, which is about two floors, 50,000 feet in aggregate. So I think it's a little bit early for us to kind of pick who the winner in that rates will be. I think, they both, in our portfolio, continue to perform well. The stores in our portfolio have buildup nicely. But I do think, as a general statement, you're seeing the -- this model more toward the -- what Spaces and WeWork is doing, which is a just a little bit higher quality finish, kind of a more services and amenities that go along with that. So, I would expect Regus to continue to convert a large portion of their inventory to the Spaces model. But I -- look, I think there's room for both of those. They appeal to different segments of that type of demand, looking for flexible office space. And we'll likely continue to do business with both.

Right. And then last question for you. On one hand, 7% cash, 25% GAAP releasing spread sounds pretty good. But when you combine that with $6.70 per square foot per lease year, it takes a lot of wind out of that sale. Are those kind of metrics good enough to actually create value at the asset level?

Well, John, I think that 7% was kind of below our trend over the last couple of years, which I think has been closer to kind of 9%, 10%. And so, this particular quarter was impacted by just some of the mix of leases that we have. And so as we do look at our lease economics and net effective rents, they continue to be positive, they continue to trend in the right direction. And we always factor in as well -- as we look at those leases and the underlying net effective rents, when we take a lease that's expiring in the next 12 months and extend that by seven to ten years, that does have an impact as well on the residual value and the cap rate of that particular asset. So, we continue to believe by our math and we look very closely at that math that the leasing that we're doing and the economics in which we are achieving is continuing to create value in the portfolio.

Great. Thank you very much.

The next question comes from Dave Rodgers with Baird. Please go ahead.

Yeah. Good morning, guys. Just a couple of quick follow-ups for me, Gregg, maybe just on the accounting side it, DFA staying in Fifth Third just a little bit longer. Obviously, I assume, they'll continue to pay cash rent to Firth Third. But you have a duplication of GAAP rent just for accounting reasons between DFA build-to-suit and the Firth Third?

No, I don't believe so. No.

[Indiscernible] moving it at build-to-suit, if that makes sense.

They ran it. It's a new building. We'll commence when they occupy.

Right. Okay, as opposed to build up. That's helpful. And then Colin, maybe follow-up on the backfilled then of DFA, and I can remember what you said last quarter about the activity there and the delay at all impacting any potential move ins or discussions you're have in there?

Yes. It's been a little bit of a moving target, given the additional work that we've been doing at the new building Dimensional Place. So that's made it a little bit challenging for our team. But now that as we have certainty with the specific and hard date, our team has been very active and we've got good discussions going on with several potential customers. As I mentioned in my prepared remarks, Charlotte continues to be very, very strong. It's been a terrific net absorption year. And now that we've got specific date of that space being available in March, we're pleased with the activity we've got going.

And any initial thoughts on the mark-to-market to Firth Third?

Again we have consistently given the guidance of 8% to 10% across the portfolio. And so, we've been careful not to give specific guidance on a particular suite or tenant. But I'm optimistic that we'll see some rent roll up. Keep in mind that was a relatively short term lease that we did with Dimensional Fund Advisors. So, haven't had enough churn to really be an outsized mark-to-market. But I think that there's -- we're optimistic that there'll be a positive result there.

Great. And then, I heard your comments earlier on Midtown -- sorry, Buckhead and the leasing activity that you were seeing there. Just wanted to maybe tie out at terminus the move out that you talked about in the 2Q and the 3Q, with the backfill that you said you were working on. And so you put WeWork in a couple of floors and then you got two move outs pending next year. Can you kind of walk through the math? What's kind of left? And then with the floor that you did, are you planning to do there kind of what's behind that in the activity that you're seeing?

Yeah. So I agree, we do have two customers that will vacate next year in aggregate between CBRE and Bain, that's about 140,000 square feet. And so, keep in mind, as again I mentioned in my prepared remarks, that is a 50-50 JV with JPMorgan. So as that effectively works through our financials, it's about 70,000 feet. And we're encouraged. Terminus is a best-in-class asset here in not just Buckhead and Atlanta, so for us to have that type of block and our team is hard at work. The activity in the market overall is good. As I mentioned earlier, we just did a 40,000 square foot lease with Workday, which is a terrific technology company. It's exciting to see them come to Buckhead, and I feel confident that if the space at terminus were available when Workday was in the market, that would have been something we would have been competing at with two different assets. So, as we roll into 2019 and that space becomes closer, I think we're very encouraged by the prospects of the market and our ability to execute there.

Okay, great. Thank you both for the color.

The next question comes from Daniel Ismail with Green Street. Please go ahead.

Hey, guys. Earlier today, one of your peers commented that the values might be softening a bit in some markets, curious to hear your thoughts on cap rates and bidding trends across your markets.

Well, it -- Daniel, good morning, and thanks for the question. We continue to participate in the acquisition market and look at everything that's been available. We haven't found anything in particular that's been compelling for our strategy at this point. But as we've been an active participant in that across and throughout the Sunbelt, we really have not seen a pullback in pricing or cap rates. There's still a lot of capital that is very focused on the Sunbelt and sees the kind of the same underlying fundamentals that we do. I think, as we look across the market nationally, we have seen some softening in other markets. If you really pay attention to capital flows and really the bio composition over the last 12 months, we've seen a pullback from some foreign investors. And I think that's been probably disproportionately impacted some of the larger coastal markets. But here in the Sunbelt, we continue to see very kind of robust demand for best-in-class product.

Thanks. That's helpful. Maybe going back to the development, can you remind us what level of pre-leasing you guys would need to break ground in any of those sites you discussed earlier?

Daniel, we don't have a specific threshold for -- as a general kind of stated company policy. What we really do is, we look at each individual project on a stand-alone basis and look at the market fundamentals, we look at the competitive supply, look at the future pipeline of prospects, and then ultimately make what we think is the right risk-adjusted decision based on all of those facts, which can vary market-to-market. So you've seen us in the past do some projects a 100% pre-leased, we started Colorado Tower and Austin at the early part of the cycle at about 17% pre-leased in our most recent projects here in Atlanta. For Avalon, we started at 30% pre-leased, and we did that because we felt very bullish about the demand up there for that type of product. And I think, as we're moving through the construction, we continue to be very encouraged by the pipeline and the activity for that. So, again, it's going to be very, very project specific and market specific at that time.

Got it. Thanks a lot.

[Operator Instructions] Next, we have a follow-up question from Jamie Feldman with Bank of America. Please go ahead.

Great, thank you. I just want to go back to the conversation about, like Bain and CBRE, and then some of the other big moves you have over the next 12 months. Can you just walk us through the timing of exactly when some of these largest move-outs are going to hit? And as soon as you could get that space occupied again?

Sure, Jamie. It's -- happy to walk through it. We'll -- kind of moving on from Bain and CBRE, which I just touched on. Really the other move-outs of size, and there really are very few of them relative to the overall size of the portfolio, would be the Fifth Third Center expiration, which will be at the end of February of next year. And then I saw on your note one other that would be out there, would be the T. Rowe Price stage that expires in January of 2020. In aggregate, that's about 71,000 feet in T. Rowe made a decision to consolidate their national offices into two. So the Tampa office will be shut down. And so we've got, again, over a year or so to -- before we get that space back. In general, in a perfect world, if we have the next customer ready to go upon those expirations, we typically see three to four months of downtime to put in the tenant improvement work and build out the states for the new customers' needs. And so that would be the length to expect, if we have the next customer ready to go. As is relates to all of that space T. Rowe included, we've got good activity on those expirations, and the team is hard at work at it. And we're hopeful we'll have good news to share in the coming quarters as we get closer to those actual expirations.

Okay. Thank you. And is there anything else that's come up? Any -- I mean, if you think about next year's expiration schedule, any other sizable ones that you're now expecting?

We just discussed everything that's over 50,000 feet in the portfolio. There's really nothing else of large size.

Okay. All right, great. Thank you.

This concludes our question-and-answer session. I would now like to turn the conference back over to Larry Gellerstedt, Chairman and CEO, for any closing remarks. Please go ahead.

We appreciate everybody being on the call today and hope we'll be able to see most of you all in person at NAREIT next month. Thank you very much.

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