Pam Roper – General Counsel Larry Gellerstedt – Chief Executive Officer Colin Connolly – Chief Operating Officer Gregg Adzema – Chief Financial Officer.

Michael Lewis – SunTrust Jamie Feldman – Bank of America Merrill Lynch John Guinee – Stifel Jed Reagan – Green Street Advisors Dave Rodgers – Baird.

Good day, everyone and welcome to Cousins Properties Second Quarter Conference Call. [Operator Instructions] And please also note that this event is being recorded. I would now like to turn the conference call over to Ms. Pam Roper, General Counsel. Ma’am please go ahead..

Good morning and welcome to Cousins Properties’ second quarter earnings conference call. With me today are Larry Gellerstedt, our Chief Executive Officer; Colin Connolly, our 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 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 press release issued yesterday and a detailed discussion of some potential risks as contained in our filings with the SEC.

With that, I will turn the call over to Larry Gellerstedt..

Thanks, Pam. And thanks everyone for joining us this Friday morning. As the current economic cycle extends I am very pleased to report that business conditions and real-estate fundaments in our markets remain very positive.

Population and altitudes in job growth in the Sunbelt continues to outpace the broader market and the region has emerged, post recession, as an affordable business friendly environment, with vibrant urban cores and a young highly-educated workforce.

With corporations migrating to the Sunbelt to chase talent, and existing businesses experiencing accelerated organic growth, we have seen office vacancies in our markets hit 15 year lows. In my opinion, this is a very impressive and important measure.

However, this increased demand, while welcome, has generated a modest level of new office construction across the Sunbelt, especially in our core markets of Atlanta, Austin and Charlotte.

Thankfully, a majority of the new space has already been released and delivered and with the lack of office sites available in many of our urban submarkets, we see little to no additional speculative supply breaking ground on the immediate horizon.

Strong markets, healthy demand and manageable levels of new supply continue to support the positive outlook for Cousins in our Urban Class A Office portfolio. Six months into 2017, we have leased or renewed 912,000 square feet of office space.

Our 15.5 million square-foot operating portfolio sits at 93.2% leased, with four of our markets, 95% leased or greater. Both, our same property portfolio and the legacy Parkway same property portfolio, continue to perform extraordinary well.

When you combine the two portfolios, cash NOI for the first half of 2017 increased 10.2%, when compared to the first six months of 2016. In addition to leasing and operational success during the first half of the year, we completed $365 million in dispositions of which Cousins’ proceeds totaled $316 million.

At the same time, Gregg and his team made quick work of managing our near-term debt maturities and solidifying our balance sheet with a successful equity raise and debt placement. Rounding out Cousins strong execution year-to-date, we've started to deliver our development pipeline.

First, 8000 Avalon, our 224,000 square-foot office building, anchored by Microsoft, delivered in the second quarter, 73% lease. Moreover, just last week, we finalized another 49,000 square-foot lease, which once executed, will bring the asset to 95% leased.

With the successful lease up of 8000 Avalon, it rents mirroring what the Class A – what the Buckhead Class A market currently achieves. We are confident in the long-term outlook for this niche market in Atlanta.

Therefore, we have exercised our option to purchase the second and only remaining office portion at the Avalon, with our joint venture partner, Hines. We are currently designing the new office building, but we will not break ground until we achieve meaningful pre-leasing. Earlier this month, we delivered Carolina Square.

Our mixed-used asset near UNC's Campus at Chapel Hill. At quarter end, the residential component was 80% leased with residents projected to take occupancy in the third quarter. Also on July 23, Target, the project flagship retailer, held it's official grand opening.

Over the course of next several weeks, we expect our new residents, office users and retailers to take occupancy, with the projects stabilizing within the next 12 months. The NCR Global Headquarters in Midtown Atlanta is progressing very well, with NCR on schedule to take occupancy of Phase in January of next year.

To-date, we have turned over 14 floors to NCR for tenant improvement buildout, and will deliver an additional floor every month. Phase II is also well underway, and is tracking on schedule for NCR to take occupancy in December of 2018.

I'd like to spend the balance of my time this morning, giving you an update on our ongoing evaluation of the new markets we entered via the Parkway merger. Tempe has emerged as a bright spot in the new portfolio from the start.

And last nine months since completing the merger, Matt Money and his team have signed 394,000 square feet of new and renewal leases, including long-term leases, with quality credit tenants, like ADP and Amazon. Our ticket portfolio is now 97% leased.

New to the market inquiries and expansion demands from existing customers validates the strength of this urban submarket. Tempe's characteristics mirror what we have experienced in Austin. Companies are drawn to the low-cost, business-friendly environment, near a young, affordable and highly educated workforce.

Austin's workforce draws from the University of Texas, and Tempe draws from Arizona State University, the largest university in the country with over 80,000 students. Our Tampa assets are located in the leading and most desirable submarket in the city.

The Westshore submarket, and in particular, over Corporate Center assets commands top rents in Tampa. And with Class A product in this submarket now 91% leased, we are beginning to see meaningful rent growth. Post merger, the team has executed 260,000 square feet of new and renewal leases, including Amgen for 125,000 square feet.

Our Tampa portfolio is on 95% leased, as of quarter end, up from 88% leased when we closed the merger in October of last year. After spending much time on the ground in Orlando for well over a year, we feel our opportunities to grow and scale the platform are limited. Therefore, in the fall, we will bring our Orlando CBD assets to the market for sale.

We believe the timing could not be better, as Orlando's fundamentals continue to strengthen. Class A vacancy has dropped to 9%, and we see an uptick in activity with no new supply on the horizon. So where do we plan to put the capital to work? First, we are encouraged by the uptick and built-to-suit demand in our markets.

We also have multiple request from our existing customer base, to expand in-markets where there is no immediate space to accommodate them. While there is nothing immediate to announce at this time, we hope to start another project or two this cycle.

However, we will proceed with discipline, looking only to deploy capital at this point in the cycle on build-to-suits, or significantly leased multitenant buildings. Second, we continue to monitor the acquisition market as an additional avenue for growth. Today however, we have yet to find an opportunity of interest that we can make pencil out.

But we will be ready when the asset pricing becomes attractive. Before I turn the call over to Colin, I would like to announce two organizational changes, the Board of Directors voted on earlier week. First, the Board has asked and I have agreed to expand my role as CEO to include Chairman of the Board.

I'm pleased to have the opportunity to continue to lead such an accomplished team, and I am honored to serve the company as an Executive Chairman.

Also in recognition of his leadership role and the successful implementation of Cousin's strategy, most notably, his work alongside with Gregg and Pam on the Parkway merger, Colin was elected by the Board to serve as the President and Chief Operating Officer, and we congratulate Colin.

On behalf of the Board and the Cousins team, we look forward to continue our work together as we drive the next phase of growth for the company. With that, I'll turn it over to Colin.

Thank you, Larry. I am honored to continue to serve Cousins in partnership with you, as well as Gragg, Pam and the entire Cousins team. With our urban trophy portfolio, rock solid balance sheet and talented team, I couldn’t be more confident that many great opportunities lie ahead for Cousins.

Switching to this quarter's activity, I would like to begin my comments by highlighting some important headlines from the quarter. Next, I will provide some specific market updates and give color surrounding what we see at the portfolio level. Starting with leasing. Cousin's had another strong quarter.

The team leased 341,000 square feet of office space during the quarter, and both GAAP and cash mark-to-market on second-generation leases and renewals, posted an impressive marks at 28.5% and 13.5% respectively.

Our triple net rental rate was up 26% as compared to the same period last year, and net effect of rent, which includes TIs, commissions and free rent, increased 35% compared to the second quarter of 2016.

While this quarter's velocity decreased from previous levels, this is primarily due to our portfolio being over 93% leased and expirations through 2018 account for less than 10% of leased space. As a whole, we were pleased with the quality of leases signed and the terrific economic metrics achieved.

Moving on to our markets, let me start with Atlanta, our largest market. Across the metro area, we continue to see positive real estate fundamentals, fueled by steady demand and a moderate level of new supply.

As the southeast's largest office market, Atlanta features three critical components for long-term growth, affordability, high educational attainment and a world-class airport. We believe these attributes have been the catalyst for attracting new companies as well as organic growth within the market.

At quarter end, our six million square foot Class A portfolio was 91.4% leased. Activity in Atlanta for the quarter was strong. The team leased or renewed 225,000 square feet of office space.

The most meaningful change to our Atlanta operating portfolio in the second quarter, was our exit from Downtown Atlanta, with the sale of the American Cancer Society Center, which brings our Atlanta concentration to roughly 34% of NOI, with a majority of our portfolio located in Buckhead, Midtown and the Central Perimeter submarkets.

As I indicated on our prior calls, the significant area of focus for us, in Atlanta, is the Northpark Town Center, our 1.5 million square-foot office complex in the Central Perimeter. The team has made excellent progress during 2017, led by the 179,000 square-foot WestRock lease, which is slated to commence by year-end.

As previously disclosed, 105,000 square foot block of space will become available during the second half of the year, with the move-out of Equifax and Edna. We feel optimistic though about our team's ability to backfill this space in the coming quarters, at rents significantly above the expiring in place rental rates.

The Central Perimeter submarket traditionally attracts larger customers and Fortune 500 companies, and we believe due to it's superior locations, Northpark has the most attractive large block available in the Center Perimeter today. Turning our attention to Buckhead. I've got exciting news to report at Terminus.

Amazon who currently leases a floor in the 200 building, was looking to expand it's footprint in Buckhead as it continues it's a9.com subsidiary. Through some creative reshuffling, the team was able to renew and expand Amazon to take 50,000 feet in total, rolling rents up 10% on a blended basis.

This expansion in renewal are set to commence in January of 2018. So in the short term, you will see a different occupancy, as we terminate one existing customer and relocate another to accommodate Amazon’s growth needs.

In our Terminus 100 building, we are marketing an additional 140,000 square feet, that will become available in 2019, as a result of CBRE and Bain’s announced moves. The team is seeing good activity though, and already working on a multi-floor deal to back fill some of the space.

With Tishman spires 3 Alliance project now well-committed, and no new office construction underway in Buckhead, we’re hitting a good window to release the space, given the 2-year lead time. If you walk down Peachtree Road, at 1 and 2 Buckhead Plaza, we continue to reposition the assets, and execute our on-going value-add strategy.

Thanks to it’s fantastic Peachtree and West Bases address, and recent building improvements that have been completed, we have been successfully increasing rental rates to the high end of the Buckhead market. Given that, through 2019, we have lease expirations totaling 10% of the building’s total square footage.

This is a great mark-to-market opportunity for the company. Albeit with some potential short-term drops in occupancy, that will ultimately drive NOI and long-term value for shareholders.

In Charlotte, we are pleased to see a healthy re-balance in leasing activity across the markets since this safe legislator repealed the controversial HB 2 Bill in May. Real Estate fundamentals are extremely attractive, with rapid job creation, low vacancy levels and raising rents. Over 8% growth year-over-year in the CBD according to CBRE.

These strong characteristics have put the Charlotte office market into expansion mode, with mode, with approximately 1.9 million square feet currently under construction. We believe though that this new supply is manageable, when compared to the total market.

And we see better traction on the lease up of this new product, which we now hear is over 60% committed. Moreover, our 3.1 million square-foot portfolio is secure and stable, at 98.3% with less than 5% of the leased spaced expiring through 2019. In Austin, the market continues to fish steady growth.

At quarter end, our 1.9 million square foot portfolio was 95.4% leased. We continue to monitor the new product delivered this cycle in Downtown Austin, as well as the 1.1 million square foot currently under construction, most of which has been absorbed.

Demand continues to be robust, with few multi-floor options available in the existing space in the CBD. And to that end, we continue to explore potential new development opportunities with current customers, as they look to expand their Austin footprint. On the capital markets front, demand for Class A office towers remains very healthy.

And valuations in Austin continue to be solid. Lincoln Property Company sitting in Colorado Building, is on the market today. And pricing is rumored to be north of $650 per square foot. As a point of reference, we developed and delivered Colorado Tower in 2015, for $338 per square foot.

Fundamentals in Tampa continue to improve as well, especially in West Shore submarket, where our portfolio’s positioned. Class A vacancy in Shore dropped to sub-9% in the second quarter, and with no new supply under construction, we are beginning to see meaningful rent growth for the first time post recession at Tampa, at 4.6% year-over-year.

Similar to what we’re experiencing in Austin, we had existing customers looking to expand as well, with few attractive options available. We are evaluating ways to accommodate these requests within our current footprint, and we’ll also explore opportunities to develop, if our customers’ expansion needs support a new project.

Lastly, our Tempe portfolio had an active second quarter as well. First, ADP moved into 111 West Rio in April, taking 100% of the 225,000 square-foot building. The team also posted another excellent quarter of leasing, including a critical renewal with KPMG, and the expansion of the ZipRecruiter.

What is more impressive about Tempe when looking at our leasing efforts year-to-date, is the second-generation re-leasing spread, up 41% on a GAAP basis, and 39% on a cash basis. Heading into the back half of 2017, our 1.3 million square-foot portfolio is stable, at 97% leased, with approximately 6.5 years of weighted average lease term.

Similar to Austin and Tampa, many of our existing customers continue to express interest in expansion. The Tempe team is also looking for creative ways to accommodate these needs, by reshuffling existing customers in the current buildings. Or again, potential build-to-suit opportunities. With that, I’ll turn the call over to Gregg..

Thanks Colin. Good morning everyone. Thanks for taking the time to call this morning. Overall, we had a strong and productive quarter. FFO was $0.16 per share, driven by solid organic growth. On a cash basis, our same property NOI was up 8.6% during the second quarter over last year, led by 7.6% revenue growth.

They legacy Parkway same property portfolio, saw cash basis NOI growth of 11.7% during the quarter, led by 10.2% revenue growth. These are powerful numbers that reflect the underlying quality of our urban properties, as well as the continued strength of our Sun Belt markets.

As Colin discussed earlier, we also saw double-digit increase in our in rollouts during the quarter, with second-generation net rents increasing 13.5% on the cash basis. I’d like to point out that we made a change to our office leasing activity schedule, on Page 15 of the supplement of this quarter.

We’ve now broken out free rent as a separate line item within leasing costs. Hopefully, you’ll find this increased detail helpful, as you analyze the economics of our leasing activity. With that, I like to begin my comments by highlighting three significant items that impacted our results this quarter.

And I’ll move on to the property transactions we completed, followed by our capital markets activity. I’ll conclude by updating our 2017 earnings guidance. Starting with the significant items, we again recognized an unusually large amount of termination fees during the second quarter.

In total, we recorded $3.1 million in termination fees, the vast majority of which came from six customers. Clearly there are economic benefits with these fees. But I’m also happy to also report that we’ve already executed new leases to back fill five of these spaces. The sixth space is here in Atlanta, at 3350P Street.

Blue Cross give us notice in April on approximately 28,000 square feet they will vacate at the end of the year. And as a quick reminder, termination fees are not included in our property level NOI. We include them in the Other Income Section of our supplement. Our general and administrative expenses during the second quarter were also unusually large.

This was primarily caused by an increase in our long-term incentive compensation accrual, driven by our recent strong share price performance. This has been the case for many years, in order to ensure management’s interests are aligned with our shareholders.

The vast majority of our performance-based, long-term incentive comp here at Cousins is determined by our total return performance, relative to the SNL Office Index. During the second quarter, our total return was a positive 7%, compared to 0.1% decline in the Office Index.

As a result of this relative outperformance, our compensation expense increased approximately $2 million during the second quarter. And later in the call, I’ll discuss the implications of this on our full year G&A guidance. Finally, we recognized a $1.8 million gain on debt extinguishment during the second quarter.

This was primarily the results of pre-paying several mortgages we assumed during the Parkway merger. At the time of the merger, we marked all Parkway assumed to mortgages to market. In general, these mortgages had above market interest rates, so the mark-to-market created a premium.

Per GAAP, this premium is amortized over the remaining life of the mortgages and this amortization reduces interest expense. Most mortgages permit pre-payment a few months early without any penalty, and we took full advantage of this whenever possible.

The result is that we have accelerated the amortization of the premiums on these mortgages and recognized a gain on debt extinguishment during the quarter. This is only a timing issue.

All of these mortgages matured in 2017, so from a GAAP perspective, all we’ve really done is pull forward the amortization of the premiums within 2017, and move to this premium amortization from interest expense to gain on debt extinguishment. There is no impact on full year FFO numbers. Next I’ll move on to our property transactions.

As Larry discussed earlier, we saw two exits during the second quarter, generating approximately $360 million in gross proceeds at our share. As we previously discussed, these proceeds will be used to fund our existing development pipeline, which is now completely pre-funded on a leverage-neutral basis.

Since we have sold these assets in advance of actually deploying capital into our development effort, we’ve temporality reduced our leverage, below our stated long-term objective, of approximately 4.5x net debt to EBITDA. As of June, 30, our net debt to EBTIDA was 3.9x.

However, you’ll see this slowly move up toward the 4.5x range, as we spend this capital on our development pipeline over the several quarters. In the capital markets, we completed our inaugural $350 million private placement of senior unsecured notes during the second quarter.

These notes are divided into two different tranches, to fill specific holes in our debt maturity schedule. First tranche is a 10-year $100 million note, at a 4.09% fixed rate, which was drawn in April 19. The second tranche a is an 8-year, $250 million note at a 3.91% fixed rate, that we drew subsequent to quarter end on July 6.

This new debt refinances $359 million in assumed Parkway debt that we recently paid off. The weighted average coupon on the new debt is 3.96%. While the weighted average coupon on the old debt was 5.84%, a reduction of 188 basis points..

Second, we’ve raised our general and administrative expense assumption to between $26 million and $28 million, from a previous range of $23 million to $25 million, primarily due to the $2 million increase in long-term comp expense that I discussed earlier, plus an additional $1 million increase in the compensation accrual for the balance of 2017.

Finally, although we aren’t changing our same property NOI assumption this quarter, I’d like to take a minute to talk about it. As a reminder, we originally provided a full year 2017 range for same property GAAP NOI growth of between 2% and 4%. That range remains unchanged today, and we still anticipate hitting it.

However, the quarter-to-quarter results can be lumpy, especially when the same property pool is relatively small as ours is this year. You’ll see this lumpiness emerge in our same property numbers during the second half of the 2017, primarily driven by 2 items.

First, same property occupancy will fall slightly, as the move up that Colin discussed earlier take place at our North Park and our Terminus assets. It’s only a temporary drop, but it will reduce second half same property NOI.

Second, we were very successful with our 2016 tax appeals at several same property assets, which resulted in a reduction in tax expense in the second half of 2016. This will create an unusually low prior year comp for our second half 2017 performance.

The same trend will also generally hold true for the Legacy Parkway same property pool in the second half of 2017. One quick cleanup item in our supplement on Page 11, we inadvertently transposed first quarter 2017 leased and occupied percentages between six Center [ph] and one Orlando Center. Second quarter percentages were unaffected.

The supplement has been updated and reposted to our website. I’d like to close by reminding everyone of our upcoming Atlanta Property Tour on September 28 and 28. We have a unique and compelling portfolio here in Atlanta, and I believe you’ll find your time well spent. Please join us if you can.

With that, I'll turn the call back over to the operator for your questions..

Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Michael Lewis from SunTrust. Please go ahead with your question..

Great, thank you. First, I want to congratulate Colin on the extended role. And also to Larry. But, Larry, I wanted to ask you, your thoughts about the pluses and minuses of having those Chairman and CEO roles, separate versus combined? And then kind of the rationale for the change? I don't know if Taylor Glover – or why he is no longer Chairman.

But maybe you could talk about a little bit about that?.

Yes. Really if you -- Michael, Taylor Glover is a very accomplished person in terms of investing in his career. He's Vice Chairman of the Cox Board, one of the largest private companies in the country. He manages also all of Ted Turner's business empire. He's been on our board for probably – at least 10 years, and he's been our Chair.

If you look at the job description that we have for Chair, it really is not significantly different than a Lead Director position, and Taylor will move from the Chair position to the Lead Independent Director position.

So it really is the Board acknowledging that we're at a point, where the company is really focused on not only running our operations but taking a look at the strategy for the next five to seven years with this company.

And I want to make sure that we get ourselves structured, from a organizational standpoint, to put our strong players in the right position for the next run whenever that opportunity comes.

When I think back on the last seven or eight years, I think of so many times that we have come together, Gregg and Colin, Pam and I, and the team underneath them is just as strong, come together to debate and beat up strategy and try to make the right decisions. And I just think this, from the Board's perspective, puts us all in the position.

We're a bigger company now gives us all a little bit more time to focus on things that prepare us to be able to grow and take advantage of that next opportunity. We work at very flat organizational chart year.

So I think when we walk out of the room up from the call and the announcement gets made, we pretty much all go back to our offices and go back to work and try to continue to generate results. So this is more of a transitioning, preparing the company for the future, looking more at the five to seven year range..

Okay. Thanks. I wanted to ask, you mentioned in your prepared remarks about Three Alliance being well committed. I don't know if you could be any more specific about that. But maybe if you could comment a little on the impact of that asset leasing that has had on your portfolio? Maybe that's hard to go away now.

And are there any other specific buildings or vacancies in Buckhead that you think could also perhaps negatively impact your portfolio in Atlanta?.

I'll get the high level, Michael, this is really the only project that Tishman is finishing up in terms of their Atlanta office and Three Alliance, during the several years of its construction, had very little activity in terms of lease up.

And clearly, the ownership of the building, made a decision to get very aggressive in the last six to nine months in terms of the packages they were putting in front of customers to get the building leased up, and potentially be ready to take to market this year is what we've heard.

So yes, it's had some impact on some specific customers that we've had. And I'll let Colin give more specifics on that..

Yes, Michael, it – we hear in the market that, that building today is roughly 80% kind of committed, whether lease signed or terms have been agreed to. And we think we'll pretty quickly get that to 90% – plus.

And so as Larry mentioned, it has – had some temporary impacts on the market, as they have been quite aggressive to get the building stabilized. I think ultimately, sold. We've had some impact, as I mentioned in my prepared remarks, with CBRE is going to be relocating to Two, Three Alliance.

And so, as we look across the market, there aren't any other new buildings that we think will break ground of any significance anytime soon. In terms of other large blocks, Hines would have some space at Ed Monarch. But overall, for a market the size of Buckhead, it's very limited.

And given the improvements that we've made at Terminus, and we look forward to showing you that in September, we think we're going to be very well-positioned to backfill that space as we get that market – or that space back in 2019.

And we think that as Three Alliance goes away, kind of the temporary pressure we might have seen over the last quarter or two will – should shift its side..

Thanks. And then just one last one for me. The decision to sell the Orlando portfolio includes a couple of assets with a little bit of a vacancy.

Do you have a sense of investor demand down there? What you think market cap rates are for these assets?.

Michael, I think that there will be good demand for these assets. They're high quality buildings, very institutional quality buildings. And we've seen broadly, investors, large investors and foreign investors start to migrate into secondary markets like Orlando.

There has been some activity – high quality buildings that have been trading, out like in the very submarket of Orlando. And we saw very good depth in buyer interest for those assets. Similarly, over in Tampa and in Rocky point, there is a couple of buildings that are in process of trading. Again, we're seeing very good depth in interest.

And so that gives us a lot of confidence in the interest we'll see on our Orlando assets. In terms of cap rates and pricing, I think we want to be a little careful at this point not to kind of skew the process as we get ready to bring those to market. We'd like to present those the right way, and let the market, hopefully, do what it does.

And help us achieve really strong price for our shareholders..

Great. Thanks a lot..

Our next question comes from Jamie Feldman from Bank of America Merrill Lynch. Please go ahead with your question..

Great, thank you. Also congratulations to Larry and Colin on your extended roles. I guess just starting out, if we could – Gregg, your comments on GAAP same-store, probably moderating in the back half, you've had – you've hit the cover of the ball here on the cash same-store.

Can you just give us some thoughts on, whether back half of the year into 2018, just like how sustainable are these big cash same-store NOI growth rates?.

Well, Jamie, the guidance that we provided at the beginning of the year between 2% and 4% for GAAP NOI same property performance remain unchanged. And so year-to-date, we've put up a number of 6.5% GAAP NOI growth.

So you do the math on that, and it's clear that the second half of the year has to be slower in order to have the full year fall inside of that guidance. But it's not an indication of changes of health in the market. You're going to see the revenue side of that equation continue to do well. It's just the lumpiness on the expense side primarily.

And it's a function of some artificially low comps from 2016. And some function of some expense pressure in 2017. The expense pressure in 2017 is primarily on real estate taxes. As these markets continue to do well, and as the assets appreciate, we've got to expect some property tax pressures from the municipalities in which the buildings are located.

And we're starting to see that. Now we'll fight those like we do every year. We were successful in 2015. Hopefully, we'll be successful in 2016. But our current guidance and our current forecasts, assume some pretty healthy property tax increases this year versus last year..

Okay. Maybe a different way of asking you, I know, Colin, walked through some of the vacancies coming, or I guess, repositioning within the portfolio, since you did have a lot of this space backfilled.

Can you just walk us through how to think about your occupancy over the next couple of quarters? And then if you can, into 2018, just based on what you know is moving?.

Sure. Jamie, as Gregg mentioned in his prepared remarks, we do think that over the next few quarters that we could see – or we will see occupancy tick down and primarily driven by a lot of the large customers, that we've been signaling for several quarters. As you look out at Northpark, Equifax is an August expiration.

Edna, which we've talked about before, is in October of this year. We've got at -- down in Tampa at our Harborview assets, the -- we've got a 50,000 square-foot expiration there, with Laser Spine Institute.

And so you'll see, as a result of those – that occupancy tick down, so in terms of our same-store, over the coming quarters, as Gregg mentioned, that could create some pressure. But again, as we get that space back, we've got the opportunity then lease that back up in 2018, to try to push same-store into a positive position again..

Okay. And then I know you walked through a bunch of them.

Is there anything in 2018 that you didn't mention that is a known move-out, that sizable?.

Again, Harbor View at the beginning of 2018. The other significant expiration in 2018 will be in the latter half of the year in November. And again, that's a good story of kind of Cousins value creation. The mention of fund advisors had leased two floors at Fifth Third Center.

Really, it's temporary swing space, until we complete and deliver their new project in the south end. So we will get two floors back at the Fifth Third Center..

Okay. And then you guys had commented about putting capital to work. One of the ways is existing tenants in the portfolio wanted you to expand.

Are you -- were you commenting may be you can expand into more markets with new tenants? Or this would all be within the same footprint?.

Jamie, when I look at our sort of three to six-month window, in terms of where the tenant activity is, we have its existing customers that want to expand in the existing markets that we're with them. So we have those opportunities.

And we're – I'm optimistic that one or two of those will have a good chance to plan out and we can give more color on them between now. So it's not taken in the new markets. It's us helping to accommodate their growth in the existing markets to give business with us in..

Okay. Thanks for clarifying. All right, thank you..

You bet..

Our next question comes from John Guinee from Stifel. Please go ahead with your question..

Great, great. Thank you, congratulations, Larry. Congratulations Colin. I guess this is for one of you guys. If you look at the office and also the retail world out there these days, it seems like most moves are done on a turnkey basis in terms of both tenant improvements and sometime to even moving allowances.

And the norm or the quid pro quo, is increasing rental rate. Said another way, the tenant is willing to pay the rent, if they can avoid the upturn capital costs. And the landlord appears to be more and more to be financing corporate America.

Is that a fair analogy of how the leasing world is evolving?.

I would say that we have seen some pressure on tenant improvement allowances kind of upwards. I don't know that I would – I think if you look at what's kind of driving that. I don't know if it's totally landlord financing corporate Americas. A big part of it is just construction cost continue to rise.

And so as those increase that has certainly for some pressure on our TIs. As I look back over our last four to six quarters. It held relatively steady in certain quarters like this one. It's a tick higher then probably the last couple of quarters.

But we also had some pretty healthy activity leasing-wise at our Avalon project, where it's shell condition versus second-generation space. And that typically comes at a higher cost. But we'll continue to look hard at this.

And as costs have gone up, as we've mentioned in our prepared remarks, we have started to see some real meaningful rent growth in the Sunbelt markets. In Atlanta and Austin, that had taken a hold several years ago, but we're pretty encouraged to now see that playing out in markets like Tampa as well..

Great. And then second question, regarding the build-to-suit environment.

One, are these build-to-suits on Cousin's own land or other land? And then, besides Highwoods and Hines, who are your major competitors when you're bidding a build-to-suit opportunity?.

John, it’s really – let me take the first one on sites. We really have both.

We have some customers that we have identified sites already in our control that we're pitching, but we also have a couple of that have come to us and it's very similar to what we do with dimensional fund deposits where they came to us and said, let’s go collectively as a team, go, and pick a site, and then we want you to do it.

So we have a sort of a combination of those things. I think when you look at the competitors, it is very different market to market.

But generally, on these build-to-suits somewhere in the capital stack there has to be an institutional partner, whether it's a insurance company or REIT or some other version of it, and I don't know, but we have a predominant type that we are competing against.

Oftentimes – and I think it goes for this whole thing of urban a new talent, oftentimes is more the location of the site and how that works with their recruitment view within the company.

I think one of the most interesting changes we're talking about at our board meeting this week, that you used to get 10 years ago, when you had a corporate relocation or major expansion in the market, you knew the ultimate decision was really being driven by the CEO.

And today, you really see HR is – the Head of HR being the one driving those decisions. One of the build-to-suits that we’re looking at decision got delayed because the HR director had a medical leave that had to take place. So I think it's a very interesting thing and it plays well to the markets and submarkets we are situated in..

Great. Thank you..

Thanks, John..

Our next question comes from Jed Reagan from Green Street Advisors. Please go ahead with your question..

Hey. Good morning, guys, and congrats Larry and Colin.

In terms of the Orlando sales, are there material taxable gains that you need to be mindful of protecting the 1031 or special dividend? And maybe just some general, can you talk about the supply demand characteristics of that market that made you feel like it wasn't a long-term hold for Cousins?.

Jed, good morning, it’s Gregg. I will tackle the tax issue and then I will turn it over for the others. We are still kind of zeroing. And we think ultimate pricing will be clearly we had a range and we’ve done our tax work around that range. We will be able to absorb that gain without a 1031 nor with special distribution.

So I don't think you'll see any tax repercussions or distribution repercussions as a result of our sales in Orlando..

And I think that Jed, in terms of the market, Orlando's shows strong job growth. That job growth we haven't seen at transform into strong office growth for the type of assets that we have. It’s not – I mean, Orlando is a good market and it does seem to be picking up some speed.

We don't know of any – there's one building rumored to be started – yet ready to start at the next six months in downtown, that’s a couple of thousand square feet. We don't know if that is – will happen or not.

But unlike other thing when we look at Orlando is the – the assets we have, probably the two of them aren't located in the part of downtown that drives the strongest rents in terms of customer decisions. Their grade assets and I think they'll lease up, but they just don't really fit our profile as well as we would like.

So it's really a combination of sort of the slow growth, plus the asset locations, versus what we would like to see in our portfolio..

Okay. That's all helpful. And you mentioned you’re acquiring another site at the Avalon location.

Can you give a sense of the scale and cost and potential timing there?.

Sure, Jed. So we have closed on the second site. And as Larry mentioned, it's the last – second and last office site within Avalon, in fact it's the last site as a wholly within the Avalon. It's will be completely built out when – if and when the second building goes.

We're targeting about a, call it, 225,000 square foot to 250,000 square foot building, very similar to what we’ve just completed at 8000 Avalon. And we're excited about opportunity in front of us. As you look at the customer base that will occupy, the first building, its name is like Microsoft and Crown Castle.

And so we think that there is going to be very, very solid interest in the second building with large corporate customers like that. We are going to be very thoughtful and disciplined though as to kind of when we start that. And as Larry mentioned earlier, we’ll look for very significant pre-leasing on that project before we move forward.

So don't have a good target for you, it's ultimately going to be driven by customer interest. And so our leasing team in conjunction with Hines is already a work of that. We’re going through that process now, fully designing the building. So when that customer interest comes, we will be in a position to move very quickly..

And Jed, it’s Gregg. That piece of land and that building will be developed under the same joint venture structure with Hines as the first phase of Avalon was built..

Okay. That’s helpful. Thank you. And just one more from me. There's been some media reports that you're looking at a land site in Midtown, Atlanta.

Can you comment on that? And maybe how much density that can support? And just maybe in general how the hunt for other potential land sites is going?.

I would say that the one in particular that was mentioned in the paper just demonstrates that news gets slow during the summertime, and so that was an extraordinary speculative of report that I wouldn't spend much time thinking about relative to us.

It is an attractive site, but I don't sense if there’s any immediate transition or sale plan by the current owner who's had it long time. But on the larger scale, as we had said, we’ve been looking for sites in all of our key markets.

But Jed, we are being disciplined because I think as the cycle matures the multifamily cycle slows a bit, we'll start to see some wider opportunity and some prize softening on the site.

And we are actively working on many sites, but we're doing it with a lot of thought and not a sense of urgency and to trust overpay or pick a site that’s six months later there is a better one available across the street or something..

Great. Thanks for the color guys..

[Operator Instructions] Our next questions comes from Dave Rodgers from Baird. Please go ahead with your question..

Yes. Good morning guys. You addressed a lot so far. But I think, Larry, one thing you said early on was the 8000 Avalon was garnering rents maybe that were somewhat comparable to Buckhead. And I think in recent tours and Midtown also achieving rents, at least in some places comparable to Buckhead.

Again, Colin or Larry, just curious on kind of your thoughts on what's happening in the Buckhead market? Is it purely a function of three alliance? Is there just a shift in Atlanta in terms of how space is being used and larger tenants meeting to kind of lead that submarket that’s just kind of creating a little more traditional vacancy? So just thoughts overall.

.

Well, I think overall you have to look at Buckhead, and it's a 17 million square foot market, and there has been one new building at 500,000 feet delivered in the cycle. And so I think the three alliance is a couple of quarter sort of very specific, but relatively minor impact on the overall market.

I do think we're seeing firms that are looking – you've got one of the larger firms that’s going to the three alliance building as the Central Perimeter firm, that’s moving to Buckhead. One of the customers is moving out of Terminus, Bain is moving to Midtown.

And so you're seeing sort of certain industries starting to select areas to be in – the Midtown traditionally been a law market, but now you're seeing it be in technology and sort of creative services market. Buckhead has always been a very strong financial services, product wealth management market, and that is continuing to play out.

And you're seeing some larger firms as we say come from suburbs. And I wouldn't read a whole lot in to the current trending.

Although, as we look to the future and the company grows, we certainly would like to continue to increase things we are able to own both in Buckhead, but as well as in Midtown to grow it as a percentage of our land, our holdings in Atlanta..

Thanks. And then Larry, one of thing you had mentioned in the beginning, it sounds like – and maybe three alliances is the perfect example of it is that you're seeing or experience spec construction at this point in the cycle.

But if I read in your comments, you don't really expect to see of this, is that just because of what’s in the pipeline? Do you feel that other developers like yourselves are becoming more disciplined maybe in terms of built-to-suits start? Just what's in pipeline out there gives you more confidence? Anymore color on that would be helpful..

Well, it's interesting. We were talking before the call. If you look at more markets, Orlando, Tampa and Tempe have nothing been built, in terms of new product. Austin – Downtown Austin, which is just under a 9 million square foot market has three projects being under construction. One that just delivered, but they're 90% preleased.

As we talk about Buckhead, Midtown Atlanta 17 million square foot market has one building just coming out of the ground, 750,000 feet, that's 60% preleased. Charlotte has three projects, one just delivered a 17 million square foot market, it’s 1.8 million feet, they’re 60% preleased.

So we do have some supply coming, but it's so small compared to the overall market, and we don't sense that there is the 400,000 and 500,000 square foot spec of deals that have any type of short-term expectation on our part that will get started in any of the markets that we're in..

Dave, I would just add in terms of development today. It's hard in these urban submarkets relative to suburban markets. Finding suitable land sites is become more and more challenging, especially with multifamily developers taking lot of that existing land inventory.

And so, as you're trying to grow and expand some of our existing customers, finding that available land site is very, very difficult. And in the financing side is still can be challenging. And as we look across our submarkets, a lot of our competitions are private developers.

And so as Larry mentioned, any defined institutional capital and they also need to find a construction loan, which comes with guarantees and the like. So that's mated more challenging to kind of put those together in the urban core..

All right. Great. And great, thanks for all the color on the leasing. Thanks guys..

Thanks Dave..

And ladies and gentlemen, at this time I'm showing no additional questions. I would like to turn the conference call back over to Mr. Gellerstedt for any closing remarks..

We appreciate everybody being on the call today. We hope that a lot of you will be able to come to Atlanta for our September property tour. And we hope everyone is enjoying the rest of their summer. Thanks very much..

Ladies and gentlemen, that does conclude today's conference call. We thank you for attending. You may now disconnect your lines..